-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, LXT7Zk2SOMSVjS1aaY14l8LAsbZN8Qsd0TjrbD09OZT1r+Dj6TQ0Cm2sCgxHOIwV o5hoSM3sfmiMYJRmBcSsIQ== 0000944209-98-000396.txt : 19980223 0000944209-98-000396.hdr.sgml : 19980223 ACCESSION NUMBER: 0000944209-98-000396 CONFORMED SUBMISSION TYPE: S-1/A PUBLIC DOCUMENT COUNT: 19 FILED AS OF DATE: 19980220 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: FOX KIDS WORLDWIDE INC CENTRAL INDEX KEY: 0001023186 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-MOTION PICTURE & VIDEO TAPE PRODUCTION [7812] STATE OF INCORPORATION: DE FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: S-1/A SEC ACT: SEC FILE NUMBER: 333-12995 FILM NUMBER: 98546729 BUSINESS ADDRESS: STREET 1: 10960 WILSHIRE BOULEVARD CITY: LOS ANGELES STATE: CA ZIP: 90024 BUSINESS PHONE: 3102355100 MAIL ADDRESS: STREET 1: 10960 WILSHIRE BLVD CITY: LOS ANGELES STATE: CA ZIP: 90024 S-1/A 1 AMENDMENT NO. 2 TO FORM S-1 As filed with the Securities and Exchange Commission on February 20, 1998 REGISTRATION NO. 333-12995 - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------- AMENDMENT NO. 2 TO FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ------------- FOX KIDS WORLDWIDE, INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) DELAWARE 7812 95-4596247 (STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
10960 WILSHIRE BOULEVARD LOS ANGELES, CALIFORNIA 90024 (310) 235-5100 (ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICE) ------------- MEL WOODS PRESIDENT, CHIEF OPERATING OFFICER AND CHIEF FINANCIAL OFFICER FOX KIDS WORLDWIDE, INC. 10960 WILSHIRE BOULEVARD LOS ANGELES, CALIFORNIA 90024 (310) 235-5100 (NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF AGENT FOR SERVICE) ------------- WITH COPIES TO: ARTHUR M. SISKIND, ESQ. JEFFREY W. RUBIN, ESQ. RICHARD E. TROOP, ESQ. THE NEWS CORPORATION LIMITED SQUADRON, ELLENOFF, PLESENT & LINDA GIUNTA MICHAELSON, ESQ. 1211 AVENUE OF THE AMERICAS SHEINFELD, LLP TROOP MEISINGER STEUBER & PASICH, LLP NEW YORK, NEW YORK 10036 551 FIFTH AVENUE 10940 WILSHIRE BOULEVARD (212) 852-7000 NEW YORK, NEW YORK 10176 LOS ANGELES, CALIFORNIA 90024 (212) 661-6500 (310) 824-7000
------------- APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as practicable after this registration statement becomes effective. ------------- If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. [_] If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [_] If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [_] If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration number of the earlier effective registration statement for the same offering. [_] If the delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. [_] ------------- THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE. - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- ++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ +INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A + +REGISTRATION STATEMENT RELATING TO THESE NOTES HAS BEEN FILED WITH THE + +SECURITIES AND EXCHANGE COMMISSION. THESE NOTES MAY NOT BE SOLD NOR MAY + +OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT + +BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR + +THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE + +NOTES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE + +UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF + +ANY SUCH STATE. + ++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ SUBJECT TO COMPLETION, DATED FEBRUARY 20, 1998 PROSPECTUS FOX KIDS WORLDWIDE, INC. OFFER FOR ANY AND ALL OUTSTANDING 9 1/4% SENIOR NOTES DUE 2007 AND 10 1/4% SENIOR DISCOUNT NOTES DUE 2007 IN EXCHANGE FOR, RESPECTIVELY, 9 1/4% SENIOR NOTES DUE 2007 AND 10 1/4% SENIOR DISCOUNT NOTES DUE 2007 THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON , 1998, UNLESS EXTENDED . Fox Kids Worldwide, Inc., a Delaware corporation (the "Company"), hereby offers (the "Exchange Offer"), upon the terms and subject to the conditions set forth herein and in the related Letter of Transmittal, to exchange up to $475,000,000 aggregate principal amount of 9 1/4% Senior Notes Due 2007 (the "Senior Notes") of the Company for a like amount of the privately placed 9 1/4% Senior Notes Due 2007 (the "Old Senior Notes") of the Company issued on October 28, 1997, from the holders thereof (together with the holders of Senior Notes, "Senior Noteholders") and to exchange up to $618,670,000 aggregate principal amount at maturity of 10 1/4% Senior Discount Notes Due 2007 (the "Senior Discount Notes") of the Company for a like amount of the privately placed 10 1/4% Senior Discount Notes Due 2007 (the "Old Senior Discount Notes") of the Company issued on October 28, 1997, from the holders thereof (together with the holders of Senior Discount Notes, "Discount Noteholders"). The Senior Notes and the Senior Discount Notes are registered under the Securities Act of 1933, as amended (the "Securities Act"), pursuant to a Registration Statement of which this Prospectus is a part. The Old Senior Notes and the Old Senior Discount Notes are referred to collectively herein as the "Old Notes" and the Senior Notes and the Senior Discount Notes are referred to collectively herein as the "Notes." The Notes are being offered hereunder in order to satisfy the obligations of the Company under two separate and substantially identical Registration Rights Agreements with respect to the Senior Notes and the Senior Discount Notes, respectively, each dated October 28, 1997 (together, the "Registration Rights Agreement"), and each by and among the Company, Merrill Lynch, Pierce, Fenner & Smith Incorporated, Citicorp Securities, Inc., (cover continued on following page) ----------- SEE "RISK FACTORS" BEGINNING ON PAGE 13 HEREIN FOR A DISCUSSION OF CERTAIN RISKS THAT HOLDERS OF OLD NOTES SHOULD CONSIDER IN CONNECTION WITH THE EXCHANGE OFFER AND AN INVESTMENT IN THE NOTES OFFERED HEREBY. ----------- THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. THE DATE OF THIS PROSPECTUS IS , 1998. [INSIDE FRONT COVER] Fox Kids Worldwide logo along with artwork of characters from various of the Company's programs. The artwork includes characters from Power Rangers, Silver Surfer, X-Men, Fantastic Four, Spider-Man, Teenage Mutant Ninja Turtles, Sweet Valley High and Life With Louie. (cover continued from previous page) Bear, Stearns & Co. Inc., Donaldson, Lufkin & Jenrette Securities Corporation, and Morgan Stanley & Co. Incorporated (together the "Initial Purchasers"). Upon consummation of the Exchange Offer, certain rights under the Registration Rights Agreement, including registration rights and the right to receive the contingent increases in interest rates, will terminate, except under certain circumstances. The Exchange Offer is designed to provide to Senior Noteholders and Discount Noteholders (collectively, "Holders" or "Noteholders") an opportunity to acquire the Notes which, unlike the Old Notes, are expected to be freely transferable at all times, subject to state "blue sky" law restrictions and provided that the Holder is not an "affiliate" of the Company within the meaning of the Securities Act, and represents that the Notes are being acquired in the ordinary course of such Holder's business and the Holder is not engaged in, and does not intend to engage in, a distribution of the Notes. With the exception of the freely transferable nature of the Notes, the Notes are substantially identical to the Old Notes. See "The Exchange Offer-- Purpose of the Exchange Offer." The Company will accept for exchange any and all validly tendered Old Notes on or prior to 5:00 p.m., New York City time, on , 1998, unless extended by the Company in its sole discretion (the "Expiration Date"). Tenders of the Old Notes made pursuant to the Exchange Offer may be withdrawn at any time prior to 5:00 p.m., New York City time, on the Expiration Date unless previously accepted for exchange by the Company. The Exchange Offer is not conditioned upon any minimum principal amount of the Old Notes being tendered for exchange. However, the Exchange Offer is subject to certain conditions which may be waived by the Company and to the terms and provisions of the Registration Rights Agreement. In the event the Company terminates the Exchange Offer and does not accept any Old Notes with respect to the Exchange Offer, the Company will promptly return such Old Notes to the Holders thereof. The Old Notes may be tendered for exchange only in integral multiples of $1,000 principal amount at maturity. See "The Exchange Offer." Any waiver, extension or termination of the Exchange Offer will be publicly announced by the Company through a release to the Dow Jones News Service and as otherwise required by applicable law or regulations. The Notes will be senior unsecured obligations of the Company and will rank pari passu in right of payment to all future subordinated indebtedness of the Company. The Notes will not be guaranteed by any of the Company's subsidiaries or any third parties (including affiliates of the Company). The Notes will be effectively subordinated to all secured indebtedness of the Company and to all existing and future indebtedness of the Company's subsidiaries. As of December 31, 1997, the Company and its subsidiaries had an aggregate of approximately $1.7 billion of indebtedness outstanding, including the Notes, of which approximately $641 million of indebtedness would have been effectively senior to the Notes and the balance of which (other than the Notes) would have been subordinated in right of payment to the Notes. See "Description of Other Indebtedness" and "Description of the Notes." Cash interest on the Senior Notes will accrue at a rate of 9 1/4% per annum and will be payable semiannually in arrears on each May 1 and November 1, commencing May 1, 1998. The Old Senior Discount Notes were issued at a substantial discount from their principal amount. Accordingly, cash interest will not accrue or be payable on the Senior Discount Notes prior to November 1, 2002. Thereafter, cash interest on the Senior Discount Notes will accrue at a rate of 10 1/4% per annum and will be payable semiannually in arrears on each May 1 and November 1, commencing May 1, 2003; provided, however, that at any time on or prior to November 1, 2002, the Company may make a Cash Interest Election (as defined herein), in which case the outstanding principal amount at maturity of each Senior Discount Note will on such interest payment date be reduced to the Accreted Value (as defined herein) of such Senior Discount Note as of such interest payment date, and cash interest (accruing at a rate of 10 1/4% per annum from the Cash Interest Election Date) will be payable with respect to such Senior Discount Note on each interest payment date thereafter. The Old Notes were sold by the Company on October 28, 1997 to the Initial Purchasers in a transaction not registered under the Securities Act in reliance upon an exemption from the registration requirements of the Securities Act (the "Offering"). The Initial Purchasers subsequently placed the Old Notes with qualified institutional buyers in reliance upon Rule 144A promulgated under the Securities Act and with a limited number i (cover continued from previous page) of accredited investors that agreed to comply with certain transfer restrictions and other conditions. Accordingly, the Old Notes may not be reoffered, resold or otherwise transferred in the United States unless registered under the Securities Act or unless an applicable exemption from the registration requirements of the Securities Act is available. The Notes are redeemable at the option of the Company, in whole or in part, at any time on or after November 1, 2002, at the redemption prices set forth herein, plus accrued and unpaid interest thereon to the date of redemption. In addition, on or prior to November 1, 2000, the Company may redeem up to 35% of the originally issued aggregate principal amount of the Senior Notes at a redemption price of 109.25% of the principal amount thereof, plus accrued and unpaid interest thereon to the date of redemption, and may redeem up to 35% of the originally issued principal amount at maturity of the Senior Discount Notes at a redemption price equal to 110.25% of the Accreted Value at the redemption date of the Senior Discount Notes so redeemed (or, if a Cash Interest Election has been made, 110.25% of the principal amount at maturity of the Senior Discount Notes so redeemed, plus accrued and unpaid interest to the redemption date), in each case with the net cash proceeds of one or more Public Equity Offerings (as defined herein) or sales of Qualified Equity Interests (as defined herein) to Strategic Equity Investors (as defined herein); provided, however, that not less than 65% of the originally issued principal amount of Senior Notes and 65% of the originally issued principal amount at maturity of the Senior Discount Notes is outstanding immediately after giving effect to such redemption. Following the occurrence of a Change of Control (as defined herein), each Holder will have the right to require the Company to purchase all or a portion of such Holder's Notes at a purchase price equal to 101% of the aggregate principal amount of the Senior Notes, plus accrued and unpaid interest thereon to the date of purchase, and at a purchase price equal to 101% of the Accreted Value of the Senior Discount Notes at the date of purchase (unless the date of purchase is on or after the earlier to occur of November 1, 2002 or the Cash Election Date in which case such purchase price shall be equal to 101% of the aggregate principal amount at maturity thereof, plus accrued and unpaid interest thereon to the date of purchase). See "Description of the Notes." The Notes will be senior unsecured obligations of the Company entitled to the benefits of the Indentures (as defined herein). The form and terms of the Notes will be identical in all material respects to the form and terms of the Old Notes except that the Notes will be registered under the Securities Act. Any Old Notes not tendered and accepted in the Exchange Offer will remain outstanding and will be entitled to all the rights and preferences, and will be subject to all the limitations applicable thereto, under the Indentures (except for those rights which terminate upon consummation of the Exchange Offer). Following consummation of the Exchange Offer, any Holders of the Old Notes will continue to be subject to the existing restrictions upon transfers thereof, and the Company will have no further obligation to such Holders (other than under certain limited circumstances) to provide for the registration under the Securities Act of the Old Notes held by them. Following completion of the Exchange Offer, none of the Notes will be entitled to the contingent increase in interest rate provided pursuant to the Indentures, the Registration Rights Agreement and the Old Notes. See "The Exchange Offer." The Company is making the Exchange Offer in reliance on the position of the staff of the Securities and Exchange Commission (the "Commission") as set forth in no-action letters issued to third parties in other transactions. However, the Company has not sought its own no-action letter and there can be no assurance that the staff of the Commission would make a similar determination with respect to the Exchange Offer as in such other circumstances. Based on those interpretations by the staff of the Commission, the Company believes that the Notes issued pursuant to the Exchange Offer in exchange for the Old Notes may be offered for resale, resold and otherwise transferred by any Holder thereof (other than broker-dealers, as set forth below, and any such Holder that is an "affiliate" of the Company within the meaning of Rule 405 under the Securities Act) without compliance with the registration and prospectus delivery provisions of the Securities Act, provided that such Notes are acquired in the ordinary course of such Holder's business and that such Holder is not participating, ii (cover continued from previous page) does not intend to participate and has no arrangement or understanding with any person to participate, in the distribution of such Notes. Any Holder who participates in the Exchange Offer with the intention to participate, or for the purpose of participating, in a distribution of the Notes may not rely upon the position of the staff ofthe Commission as set forth in these no-action letters and, in the absence of an exemption therefrom, must comply with the registration and prospectus delivery requirements of the Securities Act in connection with any secondary resale transaction, and any such secondary resale transaction must be covered by an effective registration statement containing the selling securityholder information required by Item 507 of Regulation S-K promulgated under the Securities Act. Holders of Old Notes wishing to accept the Exchange Offer must represent to the Company in the Letter of Transmittal that such conditions have been met. Each broker-dealer (other than an affiliate of the Company) that receives the Notes for its own account pursuant to the Exchange Offer must acknowledge that it acquired the Old Notes as the result of market-making activities or other trading activities and will deliver a prospectus meeting the requirements of the Securities Act in connection with any resale of such Notes. The Letter of Transmittal states that by so acknowledging and by delivering a prospectus, a broker-dealer will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. This Prospectus, as it may be amended or supplemented from time to time, may be used by a broker-dealer in connection with resales of Notes received in exchange for Old Notes where such Old Notes were acquired by such broker-dealer as a result of market-making activities or other trading activities. The Company has agreed that, for a period of 90 days after the Expiration Date, it will make this Prospectus available to any broker-dealer for use in connection with any such resale. See "Plan of Distribution." Any broker-dealer who is an affiliate of the Company may not participate in the Exchange Offer and may not rely on the no-action letters referred to above and must comply with the registration and prospectus delivery requirements of the Securities Act in connection with a secondary resale transaction. See "The Exchange Offer." The Notes constitute new issues of securities with no established trading market. Although the Old Notes have been approved for trading in The Private Offerings, Resale and Trading through Automatic Linkages ("PORTAL") market of The Nasdaq Stock Market, Inc., there has been no public market for the Old Notes and it is not currently anticipated that an active public market for the Notes will develop. The Company does not intend to apply for the listing of the Notes on any securities exchange or to seek approval for quotation through any automated quotation system. The Initial Purchasers have advised the Company that each of the Initial Purchasers currently intends to make a market in the Notes; however, none are obligated to do so and any market-making may be discontinued by any Initial Purchasers at any time without notice. Accordingly, no assurance can be given as to the liquidity or the trading market for the Notes. The Notes will settle through the book-entry facilities of The Depository Trust Company. See "Description of the Notes." This Prospectus, together with the Letter of Transmittal, is being sent to all registered holders of the Old Notes as of , 1998. As of such date, there was one registered Holder of the Old Senior Notes and one registered Holder of the Old Senior Discount Notes. The Company will not receive any proceeds from the Exchange Offer. No dealer-manager is being used in connection with the Exchange Offer. See "Use of Proceeds" and "Plan of Distribution." iii (cover continued from previous page) FORWARD-LOOKING STATEMENTS THIS PROSPECTUS CONTAINS STATEMENTS WHICH CONSTITUTE FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995. THESE STATEMENTS APPEAR IN A NUMBER OF PLACES IN THIS PROSPECTUS AND INCLUDE STATEMENTS REGARDING THE INTENT, BELIEF OR CURRENT EXPECTATIONS OF THE COMPANY WITH RESPECT TO (I) THE COMPANY'S REPROGRAMMING OF THE FAMILY CHANNEL, (II) TRENDS AFFECTING THE COMPANY'S FINANCIAL CONDITION OR RESULTS OF OPERATIONS, (III) THE IMPACT OF COMPETITION AND (IV) THE EXPANSION OF THE COMPANY'S INTERNATIONAL CHANNELS AND CERTAIN OTHER OPERATIONS. PROSPECTIVE INVESTORS ARE CAUTIONED THAT ANY SUCH FORWARD-LOOKING STATEMENTS ARE NOT GUARANTEES OF FUTURE PERFORMANCE AND INVOLVE RISKS AND UNCERTAINTIES, AND THAT ACTUAL RESULTS MAY DIFFER MATERIALLY FROM THOSE IN THE FORWARD- LOOKING STATEMENTS AS A RESULT OF VARIOUS FACTORS. THE ACCOMPANYING INFORMATION CONTAINED IN THIS PROSPECTUS, INCLUDING, WITHOUT LIMITATION, THE INFORMATION UNDER "RISK FACTORS," "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS," AND "BUSINESS" IDENTIFIES IMPORTANT FACTORS THAT COULD CAUSE SUCH DIFFERENCES. AVAILABLE INFORMATION The Company has filed with the Commission a registration statement on Form S-1 relating to the Notes offered hereby (together with all amendments, exhibits, schedules and supplements thereto, the "Registration Statement") under the Securities Act. This Prospectus, which constitutes a part of the Registration Statement, does not contain all of the information set forth in the Registration Statement, certain parts of which are omitted in accordance with the rules and regulations of the Commission. For further information with respect to the Company, the Exchange Offer and the Notes, reference is hereby made to the Registration Statement. Statements contained in this Prospectus as to the contents of any contract, agreement or other document referred to accurately describe all material terms so referred to, but are not necessarily a complete description of the contents of any such contract, agreement or other document. The Registration Statement and the exhibits and schedules thereto and any periodic reports or other information filed by the Company pursuant to the Securities Exchange Act of 1934, as amended (the "Exchange Act"), may be inspected without charge and copied at the public reference facilities maintained by the Commission at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the Commission's regional offices at Seven World Trade Center, Suite 1300, New York, New York 10048 and at Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such materials can be obtained from the Public Reference Section of the Commission at 450 Fifth Street, Washington, D.C. 20549, at prescribed rates. The Commission maintains a website at http://www.sec.gov that contains reports, proxy and information statements and other information filed electronically with the Commission. Upon effectiveness of the Registration Statement, the Company will be subject to the reporting requirements of the Exchange Act, and in accordance therewith, the Company must file periodic reports and other information with the Commission. In the event the Company ceases to be subject to the informational requirements of the Exchange Act, the Company will be required under the Indentures to continue to file with the Commission the annual and quarterly reports, information, documents or other reports, including, without limitation, reports on iv Forms 10-K, 10-Q and 8-K, which would be required pursuant to the informational requirements of the Exchange Act. The Company will also furnish such other reports as may be required by law. In addition, for so long as any of the Notes are restricted securities within the meaning of Rule 144(a)(3) under the Securities Act, the Company has agreed to make available to any prospective purchaser of the Notes or beneficial owner of the Notes, in connection with any sale thereof, the information required by Rule 144(d)(4) under the Securities Act. THE EXCHANGE OFFER IS NOT BEING MADE TO, NOR WILL THE COMPANY ACCEPT SURRENDERS OF OLD NOTES FOR EXCHANGE FROM, HOLDERS IN ANY JURISDICTION IN WHICH THE EXCHANGE OFFER OR THE ACCEPTANCE THEREOF WOULD NOT BE IN COMPLIANCE WITH THE SECURITIES OR BLUE SKY LAWS OF SUCH JURISDICTION. NOTICE TO NEW HAMPSHIRE RESIDENTS NEITHER THE FACT THAT A REGISTRATION STATEMENT OR AN APPLICATION FOR A LICENSE HAS BEEN FILED UNDER CHAPTER 421-B WITH THE NEW HAMPSHIRE REVISED STATUTES WITH THE STATE OF NEW HAMPSHIRE NOR THE FACT THAT A SECURITY IS EFFECTIVELY REGISTERED OR A PERSON IS LICENSED IN THE STATE OF NEW HAMPSHIRE CONSTITUTES A FINDING BY THE SECRETARY OF STATE OF NEW HAMPSHIRE THAT ANY DOCUMENT FILED UNDER RSA 421-B IS TRUE, COMPLETE AND NOT MISLEADING. NEITHER ANY SUCH FACT NOR THE FACT THAT AN EXEMPTION OR EXCEPTION IS AVAILABLE FOR A SECURITY OR A TRANSACTION MEANS THAT THE SECRETARY OF STATE HAS PASSED IN ANY WAY UPON THE MERITS OR QUALIFICATIONS OF, OR RECOMMENDED OR GIVEN APPROVAL TO, ANY PERSON, SECURITY OR TRANSACTION. IT IS UNLAWFUL TO MAKE, OR CAUSE TO BE MADE, TO ANY PROSPECTIVE PURCHASER, CUSTOMER, OR CLIENT, ANY REPRESENTATION INCONSISTENT WITH THE PROVISIONS OF THIS PARAGRAPH. ---------------- Mighty Morphin Power Rangers, Power Rangers and Saban are registered trademarks of Saban Entertainment, Inc. and Saban International N.V. Big Bad BeetleBorgs, BeetleBorgs Metallix, Breaker High, Jim Knopf, Power Rangers In Space, Power Rangers Zeo, Power Rangers Turbo, Princess Sissi, Saban's Adventures of Oliver Twist, Space Goofs, The Why Why Family, Walter Melon and Wunschpunsch are trademarks of Saban Entertainment, Inc. and Saban International N.V. Bobby's World, The Tick, Life With Louie, Eek! Stravaganza and Eek! The Cat are trademarks of Fox Children's Network, Inc. The Family Channel and International Family Entertainment are registered U.S. service marks of International Family Entertainment, Inc. All other trademarks and trade names referred to in this Prospectus are the property of their respective owners. v SUMMARY The following summary is qualified in its entirety by, and should be read in conjunction with, the more detailed information and financial data, including the financial statements and notes thereto, included elsewhere in this Prospectus. Unless otherwise indicated herein, the term the "Company" refers collectively to Fox Kids Worldwide, Inc. and its subsidiaries. All references in this Prospectus to ratings refer to ratings compiled and published by Nielsen Media Research ("Nielsen"). THE COMPANY The Company is an integrated global children's and family entertainment company which develops, acquires, produces, broadcasts and distributes quality television programming. The Company's principal operations comprise (i) Saban Entertainment, Inc. ("Saban"), whose library of over 5,400 half-hours of completed and in-production children's programming is among the largest in the world, (ii) International Family Entertainment, Inc. ("IFE"), which operates The Family Channel, a leading basic cable television network that provides family-oriented entertainment programming in the United States, reaching approximately 95% of all cable and satellite television households, (iii) the Fox Kids Network--the top-rated children's (ages 2-11) oriented broadcast television network in the United States and (iv) a growing portfolio of Fox Kids branded cable and direct-to-home ("DTH") satellite channels operating in approximately 25 countries worldwide. By combining one of the world's largest children's programming libraries with a widely distributed cable platform, a top-rated broadcast network and the Fox Kids branded international channels, the Company has the ability to manage children's properties and brands from their creation through production, distribution and the merchandising of related consumer products. The Company is the result of the joint venture launched in 1995 by Fox Broadcasting Company ("Fox Broadcasting") and Saban to match the complementary programming and broadcasting strengths of the Fox Kids Network and the international reach of Fox Broadcasting's parent company, The News Corporation Limited ("News Corp."), with the development, production, distribution and merchandising strengths of Saban. In September 1997, the Company finalized the acquisition of IFE (the "IFE Acquisition"), whose principal business is The Family Channel. The IFE Acquisition provides the Company with several strategic advantages, including (i) a widely distributed cable platform, which reaches approximately 71 million homes, providing an effective means for more vigorous competition with other children's- and family-oriented cable services, (ii) an additional outlet for the Company's existing children's programming library, (iii) increased awareness in the Company's primary target market (children ages 2-11) through expanded hours, increased brand exposure and additional licensing and merchandising opportunities and (iv) cross-promotional opportunities with the Fox Kids Network. The Company creates, produces and acquires quality animated and live-action children's television programming with brand-name characters and elements which are either widely known to children, such as the Mighty Morphin Power Rangers ("Power Rangers"), Casper, Spider-Man, X-Men, Goosebumps and Bobby's World, or which are or have been developed or purchased due to their likelihood of maturing into popular brands. The Company produced, financed or co-financed 14 shows for each of the 1996-1997 and the 1997-1998 broadcast seasons, including Power Rangers, which since shortly after its launch in 1993 has been the highest rated children's weekday broadcast television program in the United States among boys ages 2-11. The Company generally retains worldwide rights to its brands, and currently has over 500 licensees worldwide, including toy companies Bandai, Mattel, Hasbro and Toy Biz. One of the most attractive attributes of the Company's children's programming is its "portability," in that it generally can be modified at modest cost and resold for exhibition in other countries through editing and dubbing into other languages. The Company currently distributes its programming over terrestrial broadcast services in most major television markets throughout the world. 1 While maintaining the family image and general entertainment format of the channel, the Company intends to reprogram The Family Channel with a new schedule, look, marketing campaign and logo in August 1998 as the Fox Family Channel. From 6 a.m. to 6 p.m., the Fox Family Channel will carry a total of 76.5 hours of weekly programming targeted principally to children. From 6 p.m. to 11 p.m., the Fox Family Channel will broadcast programming that appeals to the entire family and will carry advertising to be sold on the basis of adult demographics. Programming will be selected from the Company's existing library, new original productions produced or co-produced by the Company and original and library product licensed from independent suppliers. The Company also owns and operates the Fox Kids Network, the leading U.S. children's broadcast television network, which broadcasts 19 hours of children's programming each week to 97% of U.S. television households, the broadest reach of any network targeting children. The Fox Kids Network was formed by Fox Broadcasting and most of Fox Broadcasting's affiliates to provide children's programming weekdays and Saturday mornings. The Fox Kids Network has had the highest broadcast television viewership among children in its time period during 20 consecutive quarterly "sweeps" periods through November 1997. According to Nielsen, during the 1996-1997 broadcast season, approximately 19 million children--50% of all children (ages 2-11) in the United States--watched the Fox Kids Network at least once each month. The Fox Kids Network affords advertisers the opportunity to reach children in a cost-effective manner, in part by ensuring consistent nationwide placement of their advertisements by generally broadcasting its programming at the same local time and on the same day ("day-and-date") in each television market. The Fox Kids Network's advertising customers include virtually every major advertiser to children. To capitalize on the Company's extensive library of children's programming, since 1996 the Company has launched Fox Kids branded DTH satellite and cable channels in approximately 25 countries throughout Europe and Latin America. The Company intends to leverage its relationship with News Corp., which has significant equity interests in cable and satellite services in most major international markets, to further its international presence. For example, since October 1996, the Company has operated a Fox Kids branded channel as part of News Corp.'s 40%-owned BSkyB's Sky Multi-Channels package, which through DTH currently reaches 3.5 million viewers in the United Kingdom and the Republic of Ireland. The Company intends to continue to increase its presence in the children's and family television entertainment business, with the goal of becoming the leading worldwide producer, broadcaster and distributor of children's and family television programming. The Company intends to focus on the following strategies to achieve its objective: . Capitalize on U.S. Cable Platform. While maintaining the family image and general entertainment format of the channel, the Company plans to reprogram The Family Channel as the Fox Family Channel in August 1998 with a new schedule, image and promotional campaign intended to enhance ratings among the approximately 71 million subscribers of The Family Channel. The Fox Family Channel will feature children's programming seven days per week during the daytime hours and family-oriented programming during prime time. The Company also has plans to add original series to The Family Channel's prime time schedule and to double the number of original prime time movies premiering annually on the Fox Family Channel from the current level of approximately 12 to 24 or more original features. The Company believes that the availability of original and exclusive features will enhance ratings, improve demographics and build audience loyalty to the Fox Family Channel. . Continue to Strengthen U.S. Broadcasting Operations. The Company strives to maintain and improve the ratings, reach and penetration of its U.S. broadcasting network, the Fox Kids Network. The Fox Kids Network is the top-rated children's-oriented broadcast television network, currently reaching approximately 97% of the television households in the United States. The Company plans to improve its ratings for the Fox Kids Network by continuing to develop, acquire or license quality programming which is attractive to children. The Company, which has created such "hit" programs as the Power Rangers 2 and Bobby's World, currently owns most of the underlying rights to seven of the 14 different programs broadcast on the Fox Kids Network and will strive to increase the number of its owned programs broadcast. . Develop Strong Branded Characters and Properties. The Company intends to continue to create and develop new entertainment properties with potential franchise value and to build on its existing and widely recognized institutional and programming brands in order to increase viewership on its networks and maximize revenue from the licensing and merchandising of its branded characters and properties. Some of the Company's programming, such as the Power Rangers, have already achieved franchise status, and high consumer awareness should provide opportunities to generate revenues from multiple sources on a long-term basis. The Company intends to capitalize on the relationships it has built with major retailers, toy companies and more than 500 licensees worldwide to exploit the merchandising and other ancillary revenue potential of its entertainment properties. . Continue to Develop and Produce Cost-Effective Programming. The Company intends to continue its practice of obtaining contractual upfront commitments from networks, independent television stations, international broadcasters and merchandisers prior to commencing production. The Company also intends to continue to produce programming in a cost- effective manner while maintaining control over critical parts of the production process to ensure continued high quality. . Launch Additional International Channels. The Company believes that significant expansion opportunities exist in the international television markets, where the children's market has been relatively underserved. With its library of over 5,400 half-hour episodes of completed and in- production children's programming, many of which meet the local content requirement of various European countries, the Company intends to focus significant resources on the expansion of its international operations. The Company has an important strategic advantage through its relationship with News Corp., whose equity interests in international television distribution platforms and reputation throughout the world have been helpful in securing carriage agreements on those platforms. The Company intends to expand the Fox Kids Network globally by launching additional Fox Kids branded cable and DTH satellite channels targeting children in many major international territories. The Company's objective is to create synergies across the base of these channels and thereby reduce programming costs while marketing and localizing the channels to distinguish Fox Kids from its competitors. The principal executive offices of the Company are located at 10960 Wilshire Boulevard, Los Angeles, California 90024. The Company's telephone number at such address is (310) 235-5100. FINANCING PLAN The purpose of the Offering was to repay $615 million of the $1.25 billion borrowed under the Credit Agreement dated September 4, 1997, between the Company and Citicorp USA, Inc. ("Citibank"), among others (the "Old Credit Facility"), and to repay $215 million of the $345.5 million principal amount of the subordinated note issued to News America Holdings Incorporated ("NAHI") on September 4, 1997 (the "NAHI Bridge Note"). All of this indebtedness was incurred in connection with the IFE Acquisition. Upon consummation of the Offering and the application of the net proceeds therefrom, there was approximately $635 million of indebtedness under the Amended Credit Facility (as defined) and approximately $74.8 million remaining under the NAHI Bridge Note, which also reflects the reduction of $55.7 million from the receipt of net proceeds on the sale of the Company's equity stake in Flextech plc (the "Flextech Transaction"). In connection with the Offering, the Old Credit Facility was amended to allow, among other things, the repayment of a portion of the NAHI Bridge Note. The Amended Credit Facility consists of a $710 million facility, comprised of a seven-year amortizing term loan and a seven-year reducing revolving credit facility (the "Amended Credit Facility"). See "Description of Other Indebtedness," and "Business--Acquisition of International Family Entertainment, Inc." 3 THE OFFERING The Company consummated the Offering on October 28, 1997. The Old Notes were sold to the Initial Purchasers in reliance upon an exemption from the registration requirements of the Securities Act. The net proceeds to the Company from the Offering were used to repay $615 million of the $1.25 billion borrowed under the Old Credit Facility and to repay $215 million of the $345.5 million principal amount of the NAHI Bridge Note. THE EXCHANGE OFFER The Notes Offered........... $475,000,000 aggregate principal amount of 9 1/4% Senior Notes due 2007. $618,670,000 aggregate principal amount at maturity of 10 1/4% Senior Discount Notes due 2007. The yield to maturity on the Senior Discount Notes is 10 1/4% (computed on a semi- annual bond equivalent basis), calculated from October 28, 1997. See "Certain United States Federal Income Tax Considerations." Maturity.................... November 1, 2007. The Exchange Offer.......... Pursuant to the Exchange Offer, the Notes are being offered in exchange for a like principal amount of the Old Notes. The Old Notes may be exchanged only in integral multiples of $1,000 principal amount at maturity. The issuance of the Notes is intended to satisfy obligations of the Company contained in the Registration Rights Agreement. Upon consummation of the Exchange Offer, certain rights under the Registration Rights Agreement, including registration rights and the right to receive the contingent increases in interest rates, will terminate, except under certain limited circumstances. As of , 1998, there was one registered Holder of the Old Senior Notes and one registered Holder of the Old Senior Discount Notes. On that date, $475,000,000 aggregate principal amount of Old Senior Notes were outstanding and $618,670,000 aggregate principal amount at maturity of Old Senior Discount Notes were outstanding. See "The Exchange Offer." The Holders of the Old Notes whose Old Notes are not tendered and accepted in the Exchange Offer will continue to hold their Old Notes and will be entitled to all the rights and preferences (except for those rights which terminate upon consummation of the Exchange Offer) and will be subject to all the limitations applicable thereto under the Indentures governing the Old Notes and the Notes, each dated as of October 28, 1997, and each between the Company and The Bank of New York, as trustee (together the "Indentures"). Following consummation of the Exchange Offer, the holders of Old Notes will continue to be subject to the existing restrictions upon transfer thereof, and the Company will have no further obligation to such holders (other than under certain limited circumstances) to provide for the registration under the Securities Act of the Old Notes held by them. The Notes will not be entitled to certain contingent increases in interest rates which were available under the Old Notes if the Company failed to timely file this Registration Statement. 4 Resale...................... Based on interpretations by the staff of the Commission set forth in no-action letters issued to third parties, the Company believes the Notes issued pursuant to the Exchange Offer in exchange for the Old Notes may be offered for resale, resold and otherwise transferred by any Holder (other than broker-dealers, as set forth below, and any such Holder that is an "affiliate" of the Company within the meaning of Rule 405 promulgated under the Securities Act) without compliance with the registration and prospectus delivery provisions of the Securities Act, provided that such Notes are acquired in the ordinary course of such Holder's business and that such Holder is not participating, does not intend to participate, and has no arrangement or understanding with any person to participate, in the distribution of such Notes. Any Holder of Old Notes who tenders in the Exchange Offer with the intention to participate, or for the purpose of participating, in a distribution of the Notes may not rely upon such interpretations by the staff of the Commission and, in the absence of an exemption therefrom, must comply with the registration and prospectus delivery requirements of the Securities Act in connection with any secondary resale transaction, and any such secondary resale transaction must be covered by an effective registration statement containing the selling security holder information required by Item 507 of Regulation S-K promulgated under the Securities Act. Failure to comply with these requirements in such instance may result in the Holder incurring liabilities under the Securities Act for which the Holder is not indemnified by the Company. Each broker-dealer (other than an affiliate of the Company) that receives Notes for its own account pursuant to the Exchange Offer must acknowledge that it will deliver a prospectus in connection with any resale of such Notes. The Letter of Transmittal states that by so acknowledging and by delivering a prospectus, a broker-dealer will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. The Company has agreed that, for a period of 90 days after the Expiration Date, it will make this Prospectus available to any broker-dealer for use in connection with any such resale. See "Plan of Distribution." Any broker- dealer who is an affiliate of the Company may not participate in the Exchange Offer, may not rely on the no-action letters referred to above and must comply with the registration and prospectus delivery requirements of the Securities Act in connection with a secondary resale transaction. See "The Exchange Offer." Expiration Date............. The Exchange Offer will expire at 5:00 p.m., New York City time, on , 1998 (20 business days after notice is mailed to the Holders), unless extended by the Company in its sole discretion, in which case the term "Expiration Date" shall mean the latest date and time to which the Exchange Offer is extended. Any extension, if made, will be publicly announced through a release to the Dow Jones News Service and as otherwise required by applicable law or regulations. 5 Conditions to the Exchange Offer....................... The Exchange Offer is subject to certain conditions, any of which may be waived by the Company. See "The Exchange Offer--Conditions of the Exchange Offer." The Exchange Offer is not conditioned upon any minimum principal amount of the Old Notes being tendered for exchange. Procedures for Tendering the Old Notes.............. Brokers, dealers, commercial banks, trust companies and other nominees who hold the Old Notes through The Depository Trust Company ("DTC") may effect tenders by book-entry transfer in accordance with DTC's Automated Tender Offer Program ("ATOP"). The Holders of Old Notes registered in the name of a broker, dealer, commercial bank, trust company or other nominee are urged to contact such person promptly if they wish to tender the Old Notes. In order for the Old Notes to be tendered by a means other than by book-entry transfer, a Holder of the Old Notes must complete, sign and date the Letter of Transmittal, or a facsimile thereof, in accordance with the instructions contained herein and therein, and mail or otherwise deliver the Letter of Transmittal, or a facsimile thereof, together with such Old Notes and any other documents required by the Letter of Transmittal to The Bank of New York, the Exchange Agent, at the address set forth herein and therein. By executing a Letter of Transmittal, a Holder will represent to the Company that, among other things, the Notes acquired pursuant to the Exchange Offer are being obtained in the ordinary course of business of the person receiving such Notes, whether or not such person is the Holder, that neither the Holder nor any such other person has an arrangement or understanding with any person to participate in the distribution of such Notes, if the Holder is not a broker-dealer, or is a broker-dealer but will not receive the Notes for its own account in exchange for the Old Notes, neither the Holder nor any such other person is engaged in or intends to participate in the distribution of such Notes and that neither the Holder nor any such other person is an "affiliate" of the Company within the meaning of Rule 405 promulgated under the Securities Act. See "The Exchange Offer--Terms of the Exchange Offer--Procedures for Tendering Old Notes" and "The Exchange Offer--Terms of the Exchange Offer--Guaranteed Delivery Procedures." Guaranteed Delivery Procedures................. The Holders of the Old Notes who wish to tender their Old Notes and whose Old Notes are not immediately available or who cannot deliver their Old Notes, the Letter of Transmittal or any other documents required by such Letter of Transmittal to the Exchange Agent prior to the Expiration Date, must tender their Old Notes according to the guaranteed delivery procedures set forth in "The Exchange Offer--Terms of the Exchange Offer--Guaranteed Delivery Procedures." 6 Acceptance of the Old Notes and Delivery of the Notes...................... Subject to certain conditions (as described more fully in "The Exchange Offer--Conditions of the Exchange Offer"), the Company will accept for exchange any and all Old Notes which are properly tendered in the Exchange Offer and not withdrawn, prior to 5:00 p.m., New York City time, on the Expiration Date. The Notes issued pursuant to the Exchange Offer will be delivered as promptly as practicable following the Expiration Date. Withdrawal Rights........... Except as otherwise provided herein, tenders of the Old Notes may be withdrawn at any time prior to 5:00 p.m., New York City time, on the Expiration Date. See "The Exchange Offer--Terms of the Exchange Offer." Taxation.................... There will be no United States federal income tax consequences to a U.S. Holder exchanging an Old Note for a Note. Each Note will be treated as having been issued at the time the Old Note exchanged therefor was originally issued, and therefore a U.S. Holder will have the same adjusted basis and holding period in the Note as it had in the Old Note immediately before the exchange. See "Certain United States Federal Income Tax Considerations." Exchange Agent.............. The Bank of New York is the Exchange Agent. The address, telephone number and facsimile number of the Exchange Agent are set forth in "The Exchange Offer--Exchange Agent." SUMMARY OF TERMS OF THE NOTES Interest Payment Dates: The Senior Notes............ May 1 and November 1 of each year, commencing May 1, 1998. The Senior Discount Notes... Cash interest will not accrue or be payable on the Senior Discount Notes prior to November 1, 2002. Thereafter, cash interest on the Senior Discount Notes will accrue at a rate of 10 1/4% per annum and will be payable semi-annually in arrears on each May 1 and November 1, commencing May 1, 2003; provided, however, that at any time on or prior to November 1, 2002, the Company may make a Cash Interest Election on any interest payment date to commence the accrual of cash interest from and after the Cash Interest Election Date, in which case the outstanding principal amount at maturity of each Senior Discount Note will on such interest payment date be reduced to the Accreted Value of such Senior Discount Note as of such interest payment date, and cash interest (accruing at a rate of 10 1/4% per annum from the Cash Interest Election Date) shall be payable with respect to such Senior Discount Note on each interest payment date thereafter. Optional Redemption......... The Notes will be redeemable at the option of the Company, in whole or in part, at any time on or after November 1, 2002, at the redemption prices set forth herein, plus accrued and unpaid interest thereon to the date of redemption. See "Description of the Notes--Optional Redemption." 7 In addition, on or prior to November 1, 2000, the Company may redeem up to 35% of the originally issued aggregate principal amount of the Senior Notes at a redemption price of 109.25% of the principal amount thereof, plus accrued and unpaid interest thereon to the date of redemption, and may redeem up to 35% of the originally issued principal amount at maturity of the Senior Discount Notes at a redemption price equal to 110.25% of the Accreted Value at the redemption date of the Senior Discount Notes so redeemed (or, if a Cash Interest Election has been made, 110.25% of the principal amount at maturity of the Senior Discount Notes so redeemed, plus accrued and unpaid interest to the redemption date), in each case with the net cash proceeds of one or more Public Equity Offerings or sales of Qualified Equity Interests to Strategic Equity Investors; provided, however, that not less than 65% of the originally issued aggregate principal amount of the Senior Notes and not less than 65% of the originally issued principal amount at maturity of the Senior Discount Notes is outstanding immediately after giving effect to such redemption. See "Description of the Notes-- Optional Redemption." Ranking..................... The Notes will be senior unsecured obligations of the Company and will rank pari passu in right of payment with all existing and future unsecured and unsubordinated indebtedness of the Company and senior in right of payment to all future subordinated indebtedness of the Company. The Notes will be effectively subordinated to all secured indebtedness of the Company to the extent of the assets securing such indebtedness and all existing and future indebtedness of the subsidiaries of the Company, including indebtedness under the Amended Credit Facility. As of December 31, 1997, the Company and its subsidiaries had approximately $1.7 billion in indebtedness outstanding, including the Notes, of which approximately $641 million would have been effectively senior to the Notes and the balance (other than the Notes) would have been subordinated in right of payment to the Notes. See "Description of Other Indebtedness." Change of Control........... Following the occurrence of a Change of Control, each Holder will have the right to require the Company to purchase all or a portion of such Holder's Notes at a purchase price equal to (i) with respect to the Senior Notes, 101% of the aggregate principal amount thereof, plus accrued and unpaid interest thereon to the date of purchase, and (ii) with respect to the Senior Discount Notes, 101% of the Accreted Value on the date of purchase (unless the date of purchase is on or after the earlier to occur of November 1, 2002 or the Cash Interest Election Date, in which case such purchase price shall be equal to 101% of the aggregate principal amount at maturity thereof, plus accrued and unpaid interest to the date of purchase). See "Description of the Notes--Change of Control." 8 Certain Covenants........... The Indentures pursuant to which the Old Notes were issued and the Notes will be issued contain certain covenants, including (i) limitations on indebtedness, (ii) limitations on restricted payments, (iii) limitations on liens, (iv) limitations on dividends and other payment restrictions affecting Restricted Subsidiaries (as defined under "Description of the Notes-- Certain Definitions"), (v) limitations on preferred stock of Restricted Subsidiaries, (vi) limitations on transactions with affiliates, (vii) limitations on sale leaseback transactions, (viii) limitations on the disposition of proceeds of asset sales and (ix) limitations on designations of Unrestricted Subsidiaries (as defined under "Description of the Notes--Certain Definitions"). In addition, the Indentures limit the ability of the Company to consolidate, merge or sell all or substantially all of its assets. These covenants are subject to important exceptions and qualifications. See "Description of the Notes--Certain Covenants." Absence of Public Market for Notes................... The Notes will constitute new issues of securities for which there is no established public trading market. Although the Old Notes have been designated for trading in the PORTAL market, there has been no public market for the Old Notes and it is not currently anticipated that an active public market for the Notes will develop. The Company does not intend to apply for the listing of the Notes on any securities exchange or to seek approval for quotation through any automated quotation system. Although the Initial Purchasers have informed the Company that they currently intend to make a market in the Notes, they are not obligated to do so and any such market making may be discontinued at any time without notice. Accordingly, there can be no assurance as to the development or liquidity of any market for the Notes. See "Risk Factors-- Absence of Public Market for the Notes" and "Plan of Distribution." For additional information regarding the Notes, see "Description of the Notes" and "Certain United States Federal Income Tax Considerations." USE OF PROCEEDS The Company will not receive any proceeds from the issuance of the Notes pursuant to this Prospectus. See "Use of Proceeds." RISK FACTORS An investment in the Notes involves a high degree of risk. Prospective investors should carefully consider the matters set forth under "Risk Factors" beginning on page 13. 9 SUMMARY HISTORICAL AND PRO FORMA CONSOLIDATED FINANCIAL DATA Fox Kids Worldwide, Inc. was incorporated to effect the Reorganization of Fox Kids Worldwide, L.L.C. (the "LLC"), a joint venture between Saban and FCN Holding, Inc. ("FCN Holding"). As a result of the Reorganization, Fox Kids Worldwide, Inc. became the owner of (i) all of the outstanding capital stock of FCN Holding, which was an indirect subsidiary of Fox Broadcasting, (ii) all of the outstanding capital stock of Saban and (iii) Fox Broadcasting's direct and indirect member's interests in the LLC and, consequently, Saban, FCN Holding and the LLC became wholly owned subsidiaries of Fox Kids Worldwide, Inc. Prior to the Reorganization, the Company did not engage in any business activities. The Reorganization was consummated on August 1, 1997. From November 1, 1995 (the "Effective Date") until August 1, 1997, each of Saban and FCN Holding had been operated by its respective management subject to the overall supervision of a governing committee of the LLC comprised of an equal number of representatives of each of Saban and FCN Holding. As a result of the formation of the joint venture and the common management of the joint venture business, the respective assets, liabilities and operations of Saban, FCN Holding and the LLC have been combined at historical cost from and after the Effective Date. See "Formation of the Company." The following tables set forth, for the periods and on the dates indicated, summary historical and pro forma consolidated financial data of the Company derived from the financial statements included elsewhere in this Prospectus. The unaudited pro forma financial data for the Company give effect to the IFE Acquisition and related financing and the Reorganization as though they had occurred at the beginning of each period presented (with respect to the statements of operations data and other data). The unaudited pro forma as adjusted information gives effect to the IFE Acquisition and related financing and the Reorganization, as adjusted for the Offering, the Exchange Offer and the reduction of the NAHI Bridge Note from the Flextech Transaction. The information presented below should be read together with the historical financial statements and pro forma financial information included elsewhere herein. The pro forma information, as well as the Company financial information, are not necessarily indicative of actual results of operations and the financial position that would have been achieved had the transactions been consummated on the dates indicated, and are not necessarily indicative of future results of operations or financial position.
STATEMENTS OF OPERATIONS DATA: THREE MONTHS THREE MONTHS EIGHT MONTHS ENDED YEAR ENDED ENDED ENDED JUNE 30, 1996 JUNE 30, 1997 SEPTEMBER 30, 1996 SEPTEMBER 30, 1997 ------------------ ---------------- --------------------- --------------------- (IN THOUSANDS) Net revenues............ $191,621 $307,820 $ 63,801 $122,946 Operating income before amortization of intangible assets...... 60,759 58,779 16,727 27,261 Operating income........ 60,759 58,779 16,727 20,292 Interest expense........ 885 2,226 648 18,814 Net income (loss)....... 31,600 40,440 11,444 (1,175) Net income (loss) attributable to common shares................. 31,600 40,440 11,444 (6,364) Net income (loss) per common share........... $ 1.98 $ 2.53 $ .72 $ (.40) Weighted average shares outstanding............ 16,000 16,000 16,000 16,000 PRO FORMA PRO FORMA AS ADJUSTED PRO FORMA AS ADJUSTED PRO FORMA FOR THE YEAR FOR THREE MONTHS FOR THREE MONTHS FOR THE YEAR ENDED ENDED ENDED ENDED JUNE 30, 1997(1) JUNE 30, 1997(3) SEPTEMBER 30, 1997(1) SEPTEMBER 30, 1997(3) ------------------ ---------------- --------------------- --------------------- (IN THOUSANDS) Net revenues............ $614,618 $614,618 $147,431 $147,431 Operating income before amortization of intangible assets...... 160,367 160,367 34,537 34,537 Operating income........ 118,548 118,548 24,083 24,083 Interest expense........ 148,966 157,083 38,306 40,976 Net loss................ (29,884) (34,754) (11,990) (13,592) Net loss attributable to common shares.......... (60,934) (65,804) (19,753) (21,355) Net loss per common share.................. $ (3.81) $ (4.11) $ (1.23) $ (1.33) Weighted average shares outstanding............ 16,000 16,000 16,000 16,000
10
OTHER DATA: EIGHT MONTHS THREE MONTHS THREE MONTHS ENDED YEAR ENDED ENDED ENDED JUNE 30, 1996 JUNE 30, 1997 SEPTEMBER 30, 1996 SEPTEMBER 30, 1997 ------------------ ---------------- ---------------------- --------------------- (IN THOUSANDS) EBITDA (2).............. $ 61,269 $ 58,436 $16,976 $27,930 Amortization of intangible assets...... -- -- -- 6,969 Capital expenditures.... 3,053 3,435 961 1,156 Amortization of programming costs...... 83,485 144,713 34,170 57,633 Investment in programming ........... 113,506 198,861 58,133 69,022 Ratio of earnings to fixed charges.......... 22:1 11:1 -- Deficiency of earnings available to cover fixed charges.......... -- -- (540) PRO FORMA PRO FORMA AS ADJUSTED PRO FORMA AS ADJUSTED PRO FORMA FOR THE YEAR FOR THREE MONTHS FOR THREE MONTHS FOR THE YEAR ENDED ENDED ENDED ENDED JUNE 30, 1997 (1) JUNE 30, 1997(3) SEPTEMBER 30, 1997 (1) SEPTEMBER 30, 1997(3) ------------------ ---------------- ---------------------- --------------------- (IN THOUSANDS) EBITDA (2).............. $172,018 $172,018 $36,265 $36,265 Amortization of intangible assets...... 41,819 41,819 10,454 10,454 Capital expenditures.... 12,510 12,510 1,379 1,379 Amortization of programming costs...... 249,620 249,620 66,334 66,334 Investment in programming ........... 312,088 312,088 78,367 78,367 Deficiency of earnings available to cover fixed charges.......... (32,442) (40,559) (15,895) (18,565)
BALANCE SHEET DATA: AS OF SEPTEMBER 30, 1997 --------------------------------- ACTUAL ACTUAL AS ADJUSTED (4) ---------- ---------------------- (IN THOUSANDS) Cash and cash equivalents................... $ 100,267 $ 44,588 Programming costs, less accumulated amortization............................... 384,550 384,550 Total assets................................ 2,502,633 2,466,954 Long-term obligations (including current maturities)................................ 1,728,745 1,693,066 Series A preferred stock.................... 345,000 345,000 Stockholders' equity........................ 77,842 77,842
- ------- (1) The pro forma information gives effect to the IFE Acquisition and related financing and the Reorganization as if they had occurred at the beginning of each period presented (with respect to the Statements of Operations Data and Other Data). (2) EBITDA represents income from operations before interest, taxes, depreciation and amortization (excluding capitalized depreciation and amortization of programming costs). Capitalized depreciation was $1,075,000 for the eight months ended June 30, 1996, $2,023,000 for the year ended June 30, 1997 and $484,000 and $540,000 for the three months ended September 30, 1996 and 1997, respectively. EBITDA is presented because the Company believes it is a standard financial statistic commonly reported and widely used by analysts and other interested parties in the television industry. The Company believes that EBITDA, while providing useful information, should not be considered in isolation or as a substitute measure for net income or loss, as an indicator of operating performance or as an alternative to cash flow as a measure of liquidity as determined under GAAP. EBITDA also does not represent funds available for interest dividends, reinvestment or other discretionary uses. (3) The pro forma as adjusted information gives effect to the IFE Acquisition and related financing and the Reorganization described in footnote (1), as adjusted for the Offering, the Exchange Offer and the reduction of the NAHI Bridge Note from the Flextech Transaction. (4) The as adjusted information gives effect to the Offering, the Exchange Offer and the reduction of the NAHI Bridge Note from the Flextech Transaction. 11 FORMATION OF THE COMPANY In June 1995, FCN Holding and Saban formed the LLC, a strategic alliance limited liability company, to match the complementary programming and broadcasting strengths of the Fox Kids Network and the international reach of Fox Broadcasting's parent company, News Corp., with the development, production, distribution and merchandising strengths of Saban. Between November 1, 1995 and August 1, 1997, each of Saban and FCN Holding was operated by its respective management subject to the overall supervision of a governing committee of the LLC comprised of an equal number of representatives of each of FCN Holding and Saban. The Company was incorporated in August 1996 under Delaware law as a holding company of FCN Holding, Saban and the LLC. Between August 1996 and August 1997, the Company conducted no business or operations. On August 1, 1997, in connection with the Company's acquisition of a controlling interest in IFE, (i) Fox Broadcasting Sub, Inc., a wholly owned indirect subsidiary of Fox Broadcasting ("Fox Broadcasting Sub"), exchanged its capital stock in FCN Holding, which indirectly owns the Fox Children's Network, Inc. ("FCN"), for 7,920,000 shares of Class B Common Stock of the Company, (ii) the other stockholder of FCN Holding exchanged its capital stock in FCN Holding for an aggregate of 160,000 shares of Class A Common Stock of the Company, (iii) Haim Saban and the other stockholders of Saban (together, the "Saban Stockholders") (none of whom is affiliated with News Corp.) exchanged their capital stock of Saban for an aggregate of 7,920,000 shares of Class B Common Stock of the Company, and (iv) all outstanding management options to purchase Saban capital stock became options to purchase an aggregate of 646,548 shares of Class A Common Stock of the Company. In addition, Fox Broadcasting exchanged its preferred, non-voting interest in the LLC and its $50 million contingent note receivable from the LLC for a new subordinated pay-in-kind note from the Company ("Fox Subordinated Note"), which currently has an outstanding principal amount of approximately $108.6 million. See "Description of Indebtedness--Fox Subordinated Note" and "Certain Transactions--Formation of the LLC and the Reorganization." As a result of these transactions, which are referred to in this Prospectus as the "Reorganization," FCN Holding, FCN, Saban and the LLC became direct or indirect wholly owned subsidiaries of the Company. 12 RISK FACTORS Prospective investors should consider carefully the following factors, in addition to the other information contained in this Prospectus, in evaluating the Company and its business. SUBSTANTIAL LEVERAGE; ABILITY TO SERVICE INDEBTEDNESS As of December 31, 1997, the Company's total amount of consolidated debt outstanding was approximately $1.7 billion, or 80% of total capitalization. The Company's deficiency of earnings available to cover fixed charges would have been approximately $14.3 million for the three months ended September 30, 1997 after giving pro forma effect to the Offering, the IFE Acquisition and the related financing, the Reorganization (as defined) and the Flextech Transaction (collectively, the "Transactions"). The Indentures will permit the Company and its subsidiaries to incur additional debt, subject to certain limitations. See "Capitalization," "Selected Historical Consolidated Financial Data" and "Description of the Notes--Certain Covenants--Limitation on Indebtedness." The Company is a holding company and its ability to obtain funds from its subsidiaries and affiliates could be limited. See "--Risks Associated with Holding Company Structure." The degree to which the Company is leveraged following the Exchange Offer could have important consequences to the Holders, including, but not limited to, the following: (i) the Company's ability to obtain financing in the future for working capital, capital expenditures or general corporate purposes may be impaired; (ii) a substantial portion of cash flows from the operation of the Company's subsidiaries will be dedicated to the payment of the principal of and interest on its debt and will not be available for other purposes; and (iii) certain of the Company's borrowings are at variable rates of interest, which could result in higher interest expense in the event of increases in interest rates. Further, the Indentures and the Amended Credit Facility contain certain restrictive financial and operating covenants which will affect, and in many respects significantly limit or prohibit, among other things, the ability of the Company to incur indebtedness, make prepayments of certain indebtedness, pay dividends, make investments, engage in transactions with affiliates, create liens, sell assets and engage in mergers and consolidations. These covenants may significantly limit the operating and financial flexibility of the Company and may limit its ability to respond to changes in its business or competitive activities. The failure by the Company to comply with such covenants could result in an event of default under the applicable instrument, which could permit acceleration of the debt under the instrument and in some cases acceleration of debt under other instruments containing cross-default or cross-acceleration provisions. See "Description of the Notes--Certain Covenants--Limitation on Indebtedness" and "--Events of Default." The Company's ability to make scheduled payments of principal of, or to pay interest on or to refinance, its debt (including the Notes) depends on its future financial performance, which, to a certain extent, is subject to general economic, financial, competitive, legislative, regulatory and other factors beyond its control. Although management believes that cash from operations, together with available borrowings pursuant to the Amended Credit Facility, will be adequate to meet the Company's anticipated future requirements for working capital, capital expenditures and scheduled payments of interest on its debt (including the Notes) for the foreseeable future, there can be no assurance, that the Company's business will generate sufficient cash flow from operations or that future working capital borrowings will be available in an amount sufficient to enable the Company to service its debt (including the Notes) or to make necessary capital expenditures or other expenditures. Furthermore, there can be no assurance that the Company will be able to raise additional capital for any required refinancing in the future. See "Management's Discussion and Analysis of Financial Condition and Results of Operations--Liquidity and Capital Resources." The Notes will not be guaranteed by any of the Company's subsidiaries or any third parties (including any affiliates of the Company). Therefore, there should be no expectation that any person other than the Company will in the future make payments of principal, interest or premium (if any) with respect to the Notes. See "Description of the Notes." RISKS ASSOCIATED WITH HOLDING COMPANY STRUCTURE The Company is a holding company and its assets consist solely of investments in its subsidiaries. As a holding company, the Company's ability to meet its financial obligations, including its obligations under the 13 Notes and the Amended Credit Facility and its funding and other commitments to its subsidiaries, is dependent upon the earnings of the subsidiaries and the distribution or other payment of such earnings to the Company in the form of dividend distributions, loans or other advances, payment or reimbursement for management fees and expenses and repayment of loans and advances from the Company. Accordingly, the Company's ability to pay interest on the Notes and otherwise to meet its liquidity requirements may be limited as a result of its dependence upon the distribution of earnings and advances of funds by its subsidiaries. The payment of dividends or the making of loans or advances to the Company by its subsidiaries may be subject to statutory, regulatory or contractual restrictions, are contingent upon the earnings of those subsidiaries and are subject to various business considerations. Certain of the Company's subsidiaries may in the future be subject to loan or other agreements prohibiting or limiting the transfer of funds to the Company, or requiring that any indebtedness of such subsidiaries or affiliates to the Company be subordinate to the indebtedness under such agreements. In addition, because the Company is a holding company, the Notes will be effectively subordinated to all existing and future liabilities, including those under the Amended Credit Facility, and trade payables of the Company's subsidiaries, except to the extent that the Company may itself be a creditor with recognized claims against such subsidiary. Any right of the Company as an equity holder to participate in the distribution of the assets of any subsidiary upon the subsidiary's liquidation or reorganization will be subject to the prior claims of the creditors (including trade creditors) of that subsidiary. As of December 31, 1997, the Company and its subsidiaries had an aggregate of approximately $1.7 billion of indebtedness outstanding, including the Notes, of which approximately $641 million would have been effectively senior to the Notes and the balance of which (other than the Notes) would have been subordinated in right of payment to the Notes. ACQUISITION OF IFE The IFE Acquisition expanded the Company's operations into the cable television business, a business in which it had never before operated. The Company intends to change the programming of The Family Channel and there is no guarantee that the reprogrammed channel will retain its existing viewers or attract new viewers. If the ratings of The Family Channel when reprogrammed as the Fox Family Channel were to fail to meet the Company's expectations, the Company could be materially adversely affected. The Company acquired IFE with the expectation that the acquisition would result in synergies for the combined business. These include the potential to realize a greater return on its children's programming library through distribution on the Fox Family Channel and operational synergies through the sale of "packaged advertising," cross-promotional opportunities with the Fox Kids Network, consolidation of duplicative functions and the elimination of excess overhead. Achieving these anticipated business benefits will depend in part on whether the operations of IFE can be integrated with the operations of the Company in an efficient, effective and timely manner and the success of the programming changes at The Family Channel currently anticipated to be introduced in August 1998. In addition, the integration of operations of IFE into the Company will require the dedication of management resources, which may affect management's attention regarding the day-to-day business of the Company. The inability of management to integrate successfully the operations of the companies could have a material adverse effect on the business, results of operations and financial condition of the Company. See "Business--Acquisition of International Family Entertainment, Inc." INTERNATIONAL CHANNELS The Company is spending considerable resources on the development of international DTH and cable children's channels. The launch of channels throughout the world is particularly capital intensive. In many markets a number of the Company's competitors already have well established children's channels. Not only does the Company have to negotiate to obtain channel capacity (which is limited in many markets), but the Company must also acquire additional programming or adapt existing programming so that it appeals to local viewers. See "Business--Distribution--International Channels." 14 POSSIBLE DECLINE IN POPULARITY OF CURRENT PROGRAMS AND UNCERTAINTY OF ACCEPTANCE OF NEW PROGRAMS A significant portion of the Company's revenues are derived from the creation, development, production, acquisition, international distribution, merchandising and other exploitation of children's television properties. For the fiscal year ended June 30, 1997 and the three months ended September 30, 1997, revenues from these sources represented approximately 91% and 52% of the Company's consolidated revenues, respectively, and, giving effect to the IFE Acquisition as if it had occurred on July 1, 1996, 45% and 43% of pro forma consolidated revenues for the fiscal year ended June 30, 1997 and the three months ended September 30, 1997, respectively. For example, since its introduction in the United States in 1993, the Power Rangers series has been materially important to the success and growth of the Company and accounted for a significant portion of the Company's revenues and operating profits for the fiscal year ended June 30, 1997, as well as a substantial portion of the historical revenues and operating profits of Saban and FCN. For the fiscal year ended June 30, 1997 and the three months ended September 30, 1997, revenues derived from the Company's production, distribution and worldwide exploitation of Power Rangers accounted for approximately 23% and 3% of the Company's consolidated revenues and, giving effect to the IFE Acquisition as if it had occurred on July 1, 1996, 12% and 3% of pro forma consolidated revenues for the fiscal year ended June 30, 1997 and the three months ended September 30, 1997, respectively. The success of any series depends upon unpredictable and volatile factors beyond the Company's control, such as children's preferences, competing programming and the availability of other entertainment activities for children. A shift in children's interests could cause the Company's current television programming to decline in popularity, which could materially and adversely affect the Company's results of operations and financial condition. The ability of the Company to continue successfully to exploit the merchandising opportunities afforded by its programs will also be dependent on the favorable ratings of the programs and the ability of the Company's characters to continue to provide attractive merchandising opportunities for its licensees. The Company intends to continue to produce or acquire new properties, the success of which depends entirely upon market acceptance. There can be no assurance as to the continuing commercial success of any of the Company's currently distributed properties, or that the Company will be successful in generating sufficient demand and market acceptance for its new properties. While the Company is committed to the ongoing development and acquisition of children's television programming, the inability of the Company to develop or acquire new programs that are capable of achieving commercial success could materially and adversely affect the Company's results of operations and financial condition. See "Business-- Competition." DECLINE IN RATINGS OF FOX KIDS NETWORK Ratings for the Fox Kids Network among children ages 2-11 decreased 12% from the 1995-1996 broadcast season to the 1996-1997 broadcast season and, based on figures available to date for the 1997-1998 season, it is possible that ratings may decrease from the 1996-1997 season to the 1997-1998 season. As a result, the Company ordered nine new series in addition to the returning shows for the 1997-1998 season. No assurance can be given that the new series will perform better than the cancelled series. Although the Fox Kids Network still leads in ratings among the children's broadcast television networks, certain children's oriented cable channels have seen ratings increase. The Company believes that part of the decline is due to the fact that children have many entertainment options, including more hours of children's programming on cable, new video games, computers and home videos. Material declines in the ratings of the Fox Kids Network could materially and adversely affect the Company's results of operations and financial condition. POSSIBILITY OF NON-RENEWAL OF AFFILIATION AGREEMENTS BY FOX TELEVISION MEMBER STATIONS Over 93% of the affiliation agreements with Fox Broadcasting's member stations ("FOX Television Member Stations") require the affiliates also to carry the Fox Kids Network. Fox Broadcasting currently expects to continue to be able to renew its affiliation agreements with the FOX Television Member Stations as they mature. A FOX Television Member Station may choose not to renew its affiliation agreement with Fox Broadcasting and at the same time discontinue carriage of the Fox Kids Network. If a FOX Television Member Station decides not to renew its status as such, it is less likely that it would continue to carry Fox Kids Network programming. If the Company fails to renew its affiliation agreements, there could be a material and adverse effect on the results of operations and financial condition of the Company. See "Business--Distribution--Fox Kids Network" and "Business--The Strategic Alliance with Fox/News Corp." 15 POSSIBLE REDUCTION IN DISTRIBUTION OR NON-RENEWAL OF THE FAMILY CHANNEL BY CABLE OPERATORS The Company distributes The Family Channel to cable operators pursuant to affiliation agreements whereby the cable operator agrees to provide carriage for a specified per subscriber fee. At December 31, 1997, The Family Channel had affiliation agreements with approximately 850 affiliated cable operators, terminating on various dates from 1998 to 2006. Pursuant to these agreements, The Family Channel currently has 71 million cable and satellite subscribers out of a potential audience reach of 74 million households at December 31, 1997. Under these agreements, cable operators and other distributors may discontinue carriage of The Family Channel or move The Family Channel to a more narrowly distributed level of service or tier. Any such discontinuance or movement would greatly limit The Family Channel's ability to generate national advertising revenues, as these depend on broad distribution, particularly by cable operators. The Company currently expects to continue to be able to renew its affiliation agreements as they mature or to maintain its carriage on "expanded basic," the most widely distributed level of service. However, there can be no assurance that these affiliation agreements will be renewed or that they will be renewed on the same or more favorable terms. See "--Acquisition of IFE" and "Business--Acquisition of International Family Entertainment, Inc." DEPENDENCE UPON KEY PERSONNEL The Company's success depends to a significant extent upon the expertise and services of certain key executives, including Haim Saban, the Company's Chairman and Chief Executive Officer and the founder of Saban. The Company has entered into employment agreements with Mr. Saban and certain of its other key executives. The Company does not maintain "key person" life insurance policies on any of its executives. The loss of the services of Mr. Saban or any of the key personnel could have a material adverse effect on the results of operations and financial condition of the Company. See "Management." COMPETITION The businesses in which the Company engages are highly competitive. Each of the Company's primary business operations is subject to competition from companies which, in some instances, have greater production, distribution and capital resources than the Company. The Company competes on the basis of relationships and pricing for access to a limited supply of facilities and creative personnel to produce its programs. The Company competes with major motion picture studios, such as Warner Bros. Television Distribution, Inc. ("Warner Bros.") and The Walt Disney Company, and animation production companies, including Hanna Barbera and Film Roman, for the services of writers, producers, animators, actors and other creative personnel and specialized production facilities. In the United States, the Company currently competes through its Fox Kids Network and The Family Channel, and will compete through its Fox Kids Network and the Fox Family Channel, with the other broadcast television networks, public television and cable television channels, such as Nickelodeon, USA Cable Network and The Cartoon Network, for market acceptance of its programming, viewership ratings and related advertising revenues. Further, the Company vies for audiences with independent television stations, suppliers of cable television programs, radio and other forms of media. As a result of heightened competition for the children ages 2-11 category, the broadcast networks suffered a decline in ratings of their children's programming during the last two television seasons, and there can be no assurance that the decline will not continue. In addition, increased competition for viewers in the cable industry may result from technological advances, such as digital compression technology, which allow cable systems to expand channel capacity; the further deployment of fiber optic cable, which has the capacity to carry a much greater number of channels than coaxial cable; and "multiplexing," in which programming services offer more than one feed of their programming. The increased number of choices available to the Fox Family Channel's family viewing audience as a result of technological advances may lead to a reduction in the Company's market share. 16 The Company will compete for advertising revenue with the television programming services described above, as well as with other national and international television programming services, superstations, broadcast television networks, local over-the-air television stations, radio and print media, in addition to alternative delivery services that now exist or are expected to develop in the future. More generally, the Company competes with various other leisure-time activities such as home videos, movie theaters, personal computers and other alternative sources of entertainment and information. Internationally, the Company contends with a large number of U.S.-based and international distributors of children's programming, including The Walt Disney Company, Warner Bros. and Nickelodeon, with whom the Company must also compete in the development or acquisition of programming expected to appeal to international audiences. Such programming often must comply with foreign broadcast rules and regulations which may stipulate certain local content requirements. See "--Potential Adverse Impact of Regulation" and "Business-- Competition." KEY CONTRACTS The Company has master toy license agreements with Bandai America Incorporated ("Bandai") pursuant to which the Company has granted to Bandai worldwide toy manufacturing and distribution rights to three existing series, including Power Rangers, and to as many as two new series each year through the end of the year 2002. For the fiscal year ended June 30, 1997, 12% of the Company's consolidated revenues and, giving effect to the IFE Acquisition as if it had occurred on July 1, 1996, 6% of the Company's pro forma consolidated revenues, for the fiscal year ended June 30, 1997 were derived from its license agreements with Bandai. No revenues were derived from Bandai license agreements for the three months ended September 30, 1997. Should the Company's agreements with Bandai terminate, there can be no assurance that the Company would be able to enter into license agreements with other toy manufacturers on the same or more favorable terms. See "Business--Merchandising and Licensing." In addition, two of the Company's 16 series for the 1997-98 broadcast season are based on programs originally developed by Toei Company, Ltd. ("Toei"), which is currently one of Japan's largest film companies. The Company has been granted rights in perpetuity to each of these series, including Power Rangers. Toei is obligated to provide the Company with an exclusive option to acquire additional children's programming through at least 2006. While the Company believes that its ability to successfully develop future programming is not materially dependent on its relationship with Toei, the possibility nonetheless exists that any change in the Company's relationship with Toei, or the failure of Toei to perform its obligations under its agreements with the Company, could have a material adverse effect on the business, results of operations and financial condition of the Company. OVERESTIMATION OF REVENUES OR UNDERESTIMATION OF COSTS The Company follows Financial Accounting Standards Board Statement No. 53, "Financial Reporting by Producers and Distributors of Motion Picture Films," regarding revenue recognition and amortization of production costs, in which the Company owns or controls all applicable rights. All costs incurred in connection with an individual program or film, including acquisition, development, production and allocable production overhead costs and interest, are capitalized as television and film costs. These costs are stated at the lower of unamortized cost or estimated net realizable value. Estimated total production costs for an individual program or film are amortized in the proportion that revenue realized relates to management's estimate of the total revenues expected to be received from such program or film. For programs in which the Company acquires only network broadcast rights, the Company amortizes such program costs over the estimated number of broadcasts in accordance with Financial Accounting Standards Board Statement No. 63, "Financial Reporting by Broadcasters." If revenue or cost estimates change with respect to a program or film, the Company may be required to write down all or a portion of the unamortized costs for such program or film. No assurance can be given that such write-downs, if they occur, will not have a material adverse effect on the Company's results of operations or financial condition. See "Management's Discussion and Analysis of Financial Condition and Results of Operations--Significant Accounting Factors--Use of Estimates." 17 SEASONALITY All of the Company's television programming revenues are recognized either when the program is available for broadcast or when advertising spots are broadcast during a program. For this reason, significant fluctuations in the Company's total revenues and net income can occur from period to period depending upon availability dates of programs and advertising revenues. In the United States, revenues from advertising targeted at children are concentrated in the fourth calendar quarter of each year. In the international television market, a significant portion of revenues are recognized in connection with sales at the international sales trade shows (principally MIP in April and MIP-COM in October). As a result, the second and fourth quarters of each calendar year have generally contributed a substantial portion of the Company's total revenues. Due, in part, to these seasonality factors, the results of any one quarter are not necessarily indicative of results for future periods, and cash flows may not correlate with revenue recognition. See "Management's Discussion and Analysis of Financial Condition and Results of Operations--Significant Accounting Factors--Revenue Recognition and Seasonality." DEPENDENCE UPON SATELLITE TRANSPONDERS Distribution of The Family Channel depends upon the operation of satellites by third parties. The Company currently owns three full-time transponders on three different satellites for use by The Family Channel. The Company transmits The Family Channel programming using two separate "feeds" which are uplinked to two of its satellites. All of the Company-owned transponders have "protected" status. "Protected" status means that should the transponder fail, service will be transferred, subject to availability, to a spare transponder, and, if one is not available, then to a transponder with "preemptable status" on the same satellite and/or another satellite owned by the same seller or lessor, subject to certain limitations. "Preemptable" status means that the transponder can be preempted in the event of a failure of a "protected" transponder. Satellites are subject to significant risks that may prevent or impair proper commercial operations, including satellite defects, launch failure, destruction and damage and incorrect orbital placement. At present, there are a limited number of domestic communications satellites available for the transmission of cable television programming to cable system operators. If satellite transmission is interrupted or terminated due to the failure or unavailability of a transponder, the termination or interruption could have a material adverse effect on the Company. The availability of additional transponders in the future is dependent on a number of factors over which the Company has no control. These factors include the future authorization of additional domestic satellites, future competition among prospective users for available transponder space, the uncertain status of the United States' Space Shuttle Program (including priority allocations of future shuttle cargo space to military rather than commercial payloads) and the uncertain availability of satellites launching by private entities in the United States and by private or governmental entities in other countries. See "Business--Distribution--The Family Channel/Fox Family Channel--Transmission Facilities." INTERNATIONAL SUBCONTRACTING OF ANIMATION As with other producers of animated programming, the Company subcontracts some of the more labor-intensive components of its animation production process to animation studios located in countries with relatively low-cost labor, primarily in the Far East. With an increasing number of animated feature films and animated television programs being produced in recent years, the demand for the services of overseas studios has increased substantially. This increased demand may lead overseas studios to increase their fees, which could result in increased animated programming production costs incurred by the Company or the inability of the Company to contract with its preferred overseas studios. No assurance can be given that future subcontracting arrangements will be obtainable on terms which are as favorable to the Company as its current arrangements. INTERNATIONAL SALES For the fiscal year ended June 30, 1997 and for the three months ended September 30, 1997, the Company derived approximately 35% and 30% of its consolidated revenues, respectively, and, giving effect to the IFE Acquisition as if it had occurred on July 1, 1996, 19% and 26%, respectively, of its pro forma consolidated 18 revenues from international operations. As part of its business strategy, the Company intends to expand its international program production and distribution activities, as well as its worldwide merchandising, licensing and ancillary activities, including the launch of children's channels on DTH satellite and cable platforms throughout the world. See "Business--Business Strategies." The Company is subject to the special risks inherent in international business activities, including (i) general economic, social and political conditions in each country, (ii) currency fluctuations, (iii) double taxation, (iv) unexpected changes in applicable regulatory requirements and (v) compliance with a variety of international laws and regulations. The operations of the Company's international entities are measured in part in local currencies. For reporting purposes, assets and liabilities are translated into U.S. dollars using exchange rates in effect at the end of each reporting period. Revenues and expenses are translated into U.S. dollars at the average exchange rates prevailing during the period. As a result, the Company can expect to record foreign exchange losses and gains in the future. See "Management's Discussion and Analysis of Financial Condition and Results of Operations--Results of Operations." POTENTIAL ADVERSE IMPACT OF REGULATION The United States Congress and the Federal Communications Commission (the "FCC") currently have under consideration, and may in the future consider and adopt, new laws, regulations and policies regarding a wide variety of matters that may affect, directly or indirectly, the operation, ownership and profitability of the Company's business. These proposed changes include, for example, expansion of program access requirements and potential must-carry rights for digital television broadcast stations (which could limit the capacity of multichannel video programming distributors available for the Company's programming). It is impossible to predict the outcome of federal legislation currently under consideration or the potential effect thereof on the Company's business. In addition, certain aspects of the Company's cable operations are subject, directly or indirectly, to regulation at the state and/or local level. State and/or local authorities could adopt laws or regulations in this area that could further restrict the operations of the Company. See "Business--Government Regulation." POTENTIAL FOR DEADLOCKS The holders of the Class B Common Stock of the Company have agreed, so long as neither Fox Broadcasting nor the former Saban Stockholders as a group have disposed of more than one-third of their respective initial Class B Common Stock beneficial holdings, to vote their shares together on all matters presented to the stockholders, and if they cannot agree as to how to vote on a matter, to abstain from voting with respect thereto. There is no mechanism for breaking a deadlock among the holders of Class B Common Stock. With respect to the election of directors, the holders of the Class B Common Stock have agreed to vote their shares for three directors selected by Haim Saban and three directors selected by Fox Broadcasting. Because the charter documents provide that no Board action may be taken without a vote of at least three-quarters of the directors, the possibility exists that, as a result of differences which may in the future arise between Fox Broadcasting and Mr. Saban, the Company may experience difficulties in defining and meeting its business objectives, or in effecting a transaction which would be in the best interests of the Company, which could materially adversely affect the results of operations and financial condition of the Company. STRATEGIC RELATIONSHIPS WITH NEWS CORP. AND FOX The Company has had, and continues to have, a close strategic relationship with News Corp. and its affiliated entities, including Fox Broadcasting, and believes that this relationship is materially important to its business and business strategies. However, except as may be provided in the agreements between them which are discussed elsewhere in this Prospectus, neither News Corp. or its affiliated companies nor the Company are obligated to engage in any business transactions or jointly participate in any opportunities with the other, and the possibility exists that the current strategic relationships between the parties could materially change in the future. See "Business--The Strategic Alliance with Fox/News Corp." 19 TRANSACTIONS WITH STOCKHOLDERS AND THEIR AFFILIATES The Company has in the past entered into transactions and agreements, some of which are ongoing, with Haim Saban and with Fox Broadcasting and News Corp. and their affiliated companies. In addition, the Company may in the future enter into additional agreements and other transactions with certain of these affiliates. Although the Company has adopted a policy that future transactions between the Company and any of these affiliates or family members must be approved by a majority of the Board of Directors of the Company, including a majority of the Disinterested Members (as defined herein) of the Board of Directors of the Company, there can be no assurance that any such future transactions will prove to be favorable to the Company. See "Certain Transactions." ORIGINAL ISSUE DISCOUNT CONSEQUENCES The Senior Discount Notes will be issued at a discount from their principal amount at maturity. Although cash interest is not expected to accrue on the Senior Discount Notes prior to November 1, 2002, and there are not expected to be any periodic payments of interest on the Senior Discount Notes prior to May 1, 2003 (unless a Cash Interest Election has been made), original issue discount (the difference between the "stated redemption price at maturity" and the "issue price," as such terms are defined in the Internal Revenue Code of 1986, as amended (the "Code"), and Treasury Regulations thereunder) ("OID") of the Senior Discount Notes will accrete from the issue date of such Notes up to the maturity date. Consequently, Holders of the Senior Discount Notes generally will be required to include amounts in gross income for United States federal income tax purposes in advance of their receipt of the cash payments to which the income is attributable. Such amounts in the aggregate will be equal to the difference between the "stated redemption price at maturity" (inclusive of stated interest on the Senior Discount Notes) and the "issue price" of the Senior Discount Notes. See "Certain United States Federal Income Tax Considerations" for a more detailed discussion of the federal income tax consequences of the purchase, ownership and disposition of the Senior Discount Notes. In the event a bankruptcy case is commenced by or against the Company under the United States Bankruptcy Code (the "Bankruptcy Code"), the claim of a Holder of the Senior Discount Notes may be limited to an amount equal to the sum of (i) the initial offering price and (ii) that portion of the OID which is not deemed to constitute "unmatured interest" for purposes of the Bankruptcy Code. Any OID that was not amortized as of the date of any such bankruptcy filing would constitute "unmatured interest." To the extent that the Bankruptcy Code differs from the Code in determining the method of amortization of OID, a Holder of the Senior Discount Notes may realize taxable gain or loss on payment of such holder's claim in bankruptcy. ABSENCE OF PUBLIC MARKET FOR THE NOTES The Notes will constitute new issues of securities for which there is no established public trading market. Although the Old Notes are eligible for trading on PORTAL, the Company does not intend to apply for listing of the Notes on a national securities exchange or quotation of the Notes on any automated quotation system. The Initial Purchasers have advised the Company that they currently intend to make a market in the Notes, although the Initial Purchasers are not obligated to do so, and any such market making with respect to the Notes may be discontinued at any time without notice. Accordingly, there can be no assurance as to the development or liquidity of any market that may develop for the Notes, the ability of the holders of the Notes to sell their Notes or the price at which such holders would be able to sell their Notes. If a market were to exist, the Notes could trade at prices that may be lower than the initial offering price thereof, depending on many factors, including prevailing interest rates and the markets for similar securities, general economic conditions and the financial condition and performance of, and prospects for, the Company. See "Plan of Distribution." CONSEQUENCES OF FAILURE TO EXCHANGE The Notes will be issued in exchange for the Old Notes only after timely receipt by the Exchange Agent of such Old Notes or a book-entry confirmation of a book-entry transfer of the Old Notes into the Exchange Agent's 20 account at DTC, including an Agent's Message (as defined herein) if the tendering Holder does not deliver a properly completed and duly executed Letter of Transmittal, or, in the case of book-entry transfer, an Agent's Message in lieu of the Letter of Transmittal, including all other documents required by such Letter of Transmittal. Therefore, the Holders of the Old Notes desiring to tender such Old Notes in exchange for the Notes should allow sufficient time to ensure timely delivery. Neither the Exchange Agent nor the Company is under any duty to give notification of defects or irregularities with respect to tenders of the Old Notes for exchange. The Old Notes that are not tendered or are tendered but not accepted will, following consummation of the Exchange Offer, continue to be subject to the existing restrictions upon transfer thereon (as set forth in the legend thereon). Subject to the obligation of the Company to file a shelf registration statement covering resales of the Old Notes in certain limited circumstances, the Company does not intend to register the Old Notes under the Securities Act and, after consummation of the Exchange Offer, will not be obligated to do so. Upon consummation of the Exchange Offer, certain rights under the Registration Rights Agreement, including registration rights and the right to receive the contingent increases in interest rates, will terminate, except under limited circumstances. In addition, any holder of the Old Notes who tenders in the Exchange Offer for the purpose of participating in a distribution of the Notes will be required to comply with the registration and prospectus delivery requirements of the Securities Act in connection with any resale transaction. Each broker-dealer who holds the Old Notes acquired for its own account as a result of market-making or other trading activities and who receives the Notes for its own account in exchange for such Old Notes pursuant to the Exchange Offer, must acknowledge that it will deliver a prospectus in connection with any resale of such Notes. To the extent that the Old Notes are tendered and accepted in the Exchange Offer, the trading market for untendered and tendered but unaccepted Old Notes could be adversely affected due to the limited amount, or "float," of the Old Notes that are expected to remain outstanding following the Exchange Offer. Generally, a lower "float" of a security could result in less demand to purchase such security and could, therefore, result in lower prices for such security. For the same reason, to the extent that a large amount of the Old Notes are not tendered or are tendered and not accepted in the Exchange Offer, the trading market for the Notes could be adversely affected. See "The Exchange Offer." 21 THE EXCHANGE OFFER PURPOSE AND EFFECT OF THE EXCHANGE OFFER The Exchange Offer is intended to satisfy certain of the Company's obligations under the Registration Rights Agreement. In connection with the original issue and sale of the Old Notes, the Company agreed to file with the Commission a registration statement covering the exchange by the Company of the Notes for the Old Notes. The Registration Rights Agreement provides, among other things, that (i) the Company will file the Registration Statement with the Commission on or prior to January 26, 1998, (ii) the Company will use its best efforts to cause the Registration Statement to become effective under the Securities Act on or prior to March 27, 1998 and to effect the Exchange Offer before April 26, 1998, (iii) if the Exchange Offer is not effected before April 26, 1998, or if certain holders of the Old Notes notify the Company they are not permitted to participate in, or would not receive freely tradeable Notes pursuant to the Exchange Offer, the Company will use its best efforts to cause to become effective a registration statement (the "Shelf Registration Statement") with respect to the resale of the Old Notes and to keep the Shelf Registration Statement effective until up to two years after the effective date thereof, or such shorter period as the Old Notes may become eligible for sale to the public without volume or manner of sale restrictions under Rule 144(k) promulgated under the Securities Act. If (i) the Company fails to file any of the registration statements required by the Registration Rights Agreement on or before the date specified for such filing, (ii) any of such registration statements is not declared effective by the Commission on or prior to the date specified for such effectiveness (the "Effectiveness Target Date"), (iii) the Exchange Offer is required to be consummated under the Registration Rights Agreement and the Company fails to issue the Notes in exchange for all Old Notes properly tendered and not withdrawn in the Exchange Offer within 45 days of the Effectiveness Target Date with respect to the Registration Statement, or (iv) the Shelf Registration Statement or the Registration Statement is declared effective but thereafter ceases to be effective or usable in connection with the Exchange Offer or resales of Transfer Restricted Notes, as the case may be, during the periods specified in the Registration Rights Agreement (each such event referred to in clauses (i) through (iv) above, a "Registration Default"), then the Company will be required to pay as liquidated damages additional interest ("Additional Interest") on the Notes as to which the Registration Default exists. If a Registration Default exists with respect to the Senior Notes (or with respect to the Senior Discount Notes if it occurs after the Cash Interest Election Date), the interest rate on such Transfer Restricted Notes will increase, with respect to the first 90-day period (or portion thereof) while a Registration Default is continuing immediately following the occurrence of such Registration Default, .25% per annum, such interest rate increasing by an additional .25% per annum at the beginning of each subsequent 90-day period (or portion thereof) while a Registration Default is continuing until all Registration Defaults have been cured, up to a maximum rate of Additional Interest of 1.00% per annum. If a Registration Default exists with respect to the Senior Discount Notes prior to the Cash Interest Election Date, the Company will make cash payments of Additional Interest on each interest payment date on the Senior Discount Notes which are Transfer Restricted Notes at the rates set forth in the preceding sentence multiplied by the Accreted Value of the Senior Discount Notes as of the interest payment date on which such payment is made. Upon (w) the filing of the applicable registration statement (in the case of clause (i) of this paragraph), (x) the effectiveness of the applicable registration statement (in the case of clause (ii) of this paragraph), (y) the issuance of Notes in exchange for all Old Notes properly tendered and not withdrawn in the Exchange Offer (in the case of clause (iii) of this paragraph) or (z) the effectiveness of the Registration Statement or the Shelf Registration Statement, as the case may be, which had ceased to be effective (in the case of clause (iv) of this paragraph), Additional Interest as a result of the Registration Default described will cease to accrue (but any accrued amount shall be payable) and the interest rate on the Notes will revert to the original rate if no other Registration Default has occurred and is continuing. Except under certain limited circumstances, registration rights and the right to receive additional interest will terminate upon consummation of the Exchange Offer. For purposes of the foregoing, "Transfer Restricted Notes" means each Old Note until (i) the date on which such Old Note has been exchanged by a person other than a broker-dealer referred to in clause (ii) below for a Note in the Exchange Offer, (ii) following the exchange by a broker-dealer in the Exchange Offer of an Old 22 Note for a Note, the date on which such Note is sold to a purchaser who receives from such broker-dealer on or prior to the date of such sale a copy of the prospectus contained in the Exchange Offer Registration Statement, as amended or supplemented, (iii) the date on which such Old Note has been effectively registered under the Securities Act and disposed of in accordance with the Shelf Registration Statement, (iv) the date on which such Old Note is eligible for distribution to the public pursuant to Rule 144(k) under the Securities Act (or any similar provision then in force, but not Rule 144A under the Securities Act), (v) the date on which such Old Note shall have been otherwise transferred by the holder thereof and a Note not bearing a legend restricting further transfer shall have been delivered by the Company and subsequent disposition of such Note shall not require registration or qualification under the Securities Act or any similar state law then in force or (vi) such Note ceases to be outstanding. The outstanding Old Senior Notes in the aggregate principal amount at maturity of $475,000,000 and the Old Senior Discount Notes in the aggregate principal amount at maturity of $618,670,000 were originally issued and sold on October 28, 1997 (the "Issue Date"). The original sale to the Initial Purchasers was not registered under the Securities Act in reliance upon the exemption provided by Section 4(2) of the Securities Act and the concurrent resale of the Old Notes to investors was not registered under the Securities Act in reliance upon the exemption provided by Rule 144A under the Securities Act. The Old Notes may not be reoffered, resold or transferred other than pursuant to a registration statement filed pursuant to the Securities Act or unless an exemption from the registration requirements of the Securities Act is available. Pursuant to Rule 144 promulgated under the Securities Act, the Old Notes may generally be resold (a) commencing one year after the Issue Date, in an amount up to, for any three-month period, the greater of 1% of the Old Notes then outstanding or the average weekly trading volume of the Old Notes during the four calendar weeks immediately preceding the filing of the required notice of sale with the Commission and (b) commencing two years after the Issue Date, in any amount and otherwise without restriction by a Holder who is not, and has not been for the preceding 90 days, an affiliate of the Company. The Old Notes are eligible for trading in the PORTAL market, and may be resold to certain Qualified Institutional Buyers pursuant to Rule 144A promulgated under the Securities Act. Certain other exemptions may also be available under other provisions of the federal securities laws for the resale of the Old Notes. Under existing interpretations by the Staff of the Commission as set forth in no-action letters issued to third parties in other transactions, the Notes will, in general, be freely transferable after the Exchange Offer without further registration under the Securities Act, subject to any restrictions on transfer imposed by state "blue sky" laws and provided that the Holder is not an affiliate of the Company and that, in the case of broker-dealers participating in the Exchange Offer, a prospectus meeting the requirements of the Securities Act must be delivered by such broker-dealers in connection with resales of the Notes. The Company has agreed, for a period of 90 days after consummation of the Exchange Offer, to make available a prospectus meeting the requirements of the Securities Act to any such broker-dealer for use in connection with any resale of any Notes acquired in the Exchange Offer. A broker-dealer which delivers such a prospectus to purchasers in connection with such resales will be subject to certain of the civil liability provisions under the Securities Act and will be bound by the provisions of the Registration Rights Agreement (including certain indemnification rights and obligations). Any broker-dealer who is an affiliate of the Company may not participate in the Exchange Offer and may not rely on the no-action letters referred to above and must comply with the registration and prospectus delivery requirements of the Securities Act in connection with a secondary resale transaction. TERMS OF THE EXCHANGE OFFER Upon the terms and subject to the conditions set forth in this Prospectus and in the Letter of Transmittal, the Company will accept any and all Old Notes validly tendered and not withdrawn prior to 5:00 p.m., New York City time, on the Expiration Date. Subject to the minimum denomination requirements of the Notes, the Notes are being offered in exchange for a like principal amount of Old Notes. Old Notes may be exchanged only in integral multiples of $1,000 principal amount at maturity. The form and terms of the Notes will be identical in all material respects to the form and terms of the Old Notes except that the Notes will be registered under the Securities Act and, therefore, will not bear legends 23 restricting the transfer thereof. The Notes will evidence the same debt as the the Old Notes and will be entitled to the benefits of the Indentures. The Notes will be treated as a single class under the Indentures with any Old Notes that remain outstanding. The Exchange Offer is not conditioned upon any minimum aggregate principal amount of Old Notes being tendered for exchange. As of December 31, 1997, $475,000,000 aggregate principal amount of Old Senior Notes were outstanding and $618,670,000 aggregate principal amount at maturity of Old Senior Discount Notes were outstanding. This Prospectus, the Letter of Transmittal and Notice of Guaranteed Delivery are being sent to all registered Holders of the Old Notes as of that date. Tendering Holders will not be required to pay brokerage commissions or fees or, subject to the instructions in the Letter of Transmittal, transfer taxes with respect to the exchange of the Old Notes pursuant to the Exchange Offer. The Company will pay all charges and expenses, other than certain transfer taxes which may be imposed, in connection with the Exchange Offer. See "--Payment of Expenses." Holders of Old Notes do not have any appraisal or dissenters' rights under the Delaware General Corporation Law in connection with the Exchange Offer. EXPIRATION DATE; EXTENSIONS; TERMINATION The Exchange Offer will expire at 5:00 P.M., New York City time, on , 1998 (20 business days following the date notice of the Exchange Offer was mailed to the Holders). The Company reserves the right to extend the Exchange Offer at its discretion, in which event the term "Expiration Date" shall mean the time and date on which the Exchange Offer as so extended shall expire. The Company shall notify the Exchange Agent of any extension by written notice and shall mail to the registered Holders of the Old Notes an announcement thereof, each prior to 9:00 A.M., New York City time, on the next business day after the previously scheduled Expiration Date. The Company reserves the right to extend or terminate the Exchange Offer and not accept for exchange any Old Notes if any of the events set forth below under the caption "Conditions to the Exchange Offer" occur and are not waived by the Company, by giving written notice of such delay or termination to the Exchange Agent. See "--Conditions to the Exchange Offer." The rights reserved by the Company in this paragraph are in addition to the Company's rights set forth below under the caption "--Conditions to the Exchange Offer." PROCEDURES FOR TENDERING The tender to the Company of the Old Notes by a Holder thereof pursuant to one of the procedures set forth below and the acceptance thereof by the Company will constitute an agreement between such Holder and the Company in accordance with the terms and subject to the conditions set forth herein and in the Letter of Transmittal. Except as set forth below, a Holder who wishes to tender the Old Notes for exchange pursuant to the Exchange Offer must transmit an Agent's Message (as defined below) or a properly completed and duly executed Letter of Transmittal, including all other documents required by such Letter of Transmittal, to the Exchange Agent at the address set forth below under "Exchange Agent" on or prior to the Expiration Date. In addition, either (i) certificates for such Old Notes must be received by the Exchange Agent along with the Letter of Transmittal, (ii) a timely confirmation of a book-entry transfer (a "Book-Entry Confirmation") of such Old Notes, if such procedure is available, into the Exchange Agent's account at DTC pursuant to the procedure of book-entry transfer described below, must be received by the Exchange Agent prior to the Expiration Date, or (iii) the Holder must comply with the guaranteed delivery procedures described below. LETTERS OF TRANSMITTAL AND THE OLD NOTES SHOULD NOT BE SENT TO THE COMPANY. The term "Agent's Message" means a message, transmitted by DTC to and received by the Exchange Agent and forming a part of a Book-Entry Confirmation, which states that DTC has received an express acknowledgement from the tendering participant, which acknowledgment states that such participant has received and agrees to be bound by the Letter of Transmittal and that the Company may enforce such Letter of Transmittal against such participant. 24 Signatures on a Letter of Transmittal must be guaranteed unless the Old Notes tendered pursuant thereto are tendered (i) by a registered Holder of Old Notes who has not completed the box entitled "Special Issuance and Delivery Instructions" on the Letter of Transmittal or (ii) for the account of any firm that is a member of a registered national securities exchange or a member of the National Association of Securities Dealers, Inc. (the "NASD") or a commercial bank or trust company having an office in the United States (an "Eligible Institution"). In the event that signatures on a Letter of Transmittal are required to be guaranteed, such guarantee must be by an Eligible Institution. The method of delivery of Old Notes and other documents to the Exchange Agent is at the election and risk of the Holder, but if delivery is by mail it is suggested that the mailing be made sufficiently in advance of the Expiration Date to permit delivery to the Exchange Agent before the Expiration Date. If the Letter of Transmittal is signed by a person other than a registered Holder of an Old Note tendered therewith, such Old Note must be endorsed or accompanied by appropriate bond powers, in either case signed exactly as the name of the registered Holder appears on the Old Note. If the Letter of Transmittal or an Old Note or bond powers are signed by trustees, executors, administrators, guardians, attorneys-in-fact, officers of corporations or others acting in a fiduciary or representative capacity, such persons should so indicate when signing, and, unless waived by the Company, proper evidence satisfactory to the Company of their authority to so act must be submitted. All questions as to the validity, form, eligibility (including time of receipt) and acceptance of tendered Old Notes will be resolved by the Company, whose determination will be final and binding. The Company reserves the absolute right to reject any or all tenders that are not in proper form or the acceptance of which would, in the opinion of counsel for the Company, be unlawful. The Company also reserves the right to waive any irregularities or conditions of tender as to particular Old Notes. The Company's interpretation of the terms and conditions of the Exchange Offer (including the instructions in the Letter of Transmittal) will be final and binding. Unless waived, any irregularities in connection with tenders must be cured within such time as the Company shall determine. Neither the Company nor the Exchange Agent shall be under any duty to give notification of defects in such tenders or shall incur liabilities for failure to give such notification. Tenders of the Old Notes will not be deemed to have been made until such irregularities have been cured or waived. Any Old Notes received by the Exchange Agent that are not properly tendered and as to which the irregularities have not been cured or waived will be returned by the Exchange Agent to the tendering Holder, unless otherwise provided in the Letter of Transmittal, as soon as practicable following the Expiration Date. The Company's acceptance for exchange of Old Notes tendered pursuant to the Exchange Offer will constitute a binding agreement between the tendering person and the Company upon the terms and subject to the conditions of the Exchange Offer. BOOK-ENTRY TRANSFER The Exchange Agent will make a request to establish an account with respect to the Old Notes at DTC for purposes of the Exchange Offer within two business days after the date of this Prospectus, and any financial institution that is a participant in DTC's book-entry transfer facility systems may make book- entry delivery of Old Notes by causing DTC to transfer such Old Notes into the Exchange Agent's account at DTC in accordance with DTC's ATOP procedures for transfer. However, although delivery of Old Notes may be effected through book-entry transfer into the Exchange Agent's account at DTC, an Agent's Message or a duly executed Letter of Transmittal, including all other documents required by such Letter of Transmittal, must in any case be transmitted to and received by the Exchange Agent at one of the addresses set forth below under the caption "Exchange Agent" on or prior to the Expiration Date or the guaranteed delivery procedures described below must be complied with. DELIVERY OF DOCUMENTS TO DTC IN ACCORDANCE WITH DTC'S PROCEDURES DOES NOT CONSTITUTE DELIVERY TO THE EXCHANGE AGENT. 25 GUARANTEED DELIVERY PROCEDURES Holders who wish to tender their Old Notes and (i) whose Old Notes are not immediately available, or (ii) who cannot deliver their Old Notes, the Letter of Transmittal or any other required documents to the Exchange Agent prior to the Expiration Date, may effect a tender if: (a) the tender is made through an Eligible Institution; (b) prior to the Expiration Date, the Exchange Agent receives from such Eligible Institution a properly completed and duly executed Notice of Guaranteed Delivery (by facsimile transmission, mail or hand delivery) setting forth the name and address of the Holder of the Old Notes, the certificate number or numbers of such Old Notes and the principal amount of the Old Notes tendered, stating that the tender is being made thereby and guaranteeing that, within five New York Stock Exchange trading days after the Expiration Date, the Letter of Transmittal (or facsimile thereof) together with the certificate(s) representing the Old Notes, or a Book- Entry Confirmation, as the case may be, and any other documents required by the Letter of Transmittal will be deposited by the Eligible Institution with the Exchange Agent; and (c) such properly completed and executed Letter of Transmittal (or facsimile thereof), as well as the certificate(s) representing all tendered Old Notes in proper form for transfer, or a Book-Entry Confirmation, as the case may be, and all other documents required by the Letter of Transmittal are received by the Exchange Agent within three New York Stock Exchange trading days after the Expiration Date. Upon request of the Exchange Agent, a Notice of Guaranteed Delivery (as well as a copy of this Prospectus and the Letter of Transmittal) will be sent to Holders who wish to tender their Old Notes according to the guaranteed delivery procedures set forth above. CONDITIONS TO THE EXCHANGE OFFER Notwithstanding any other provisions of the Exchange Offer, or any extension of the Exchange Offer, the Company will not be required to accept for exchange, or to exchange, any Old Notes for any Notes, and, as described below, may terminate the Exchange Offer (whether or not any Old Notes have theretofore been accepted for exchange) or may waive any conditions to or amend the Exchange Offer, if any of the following conditions have occurred or exists or have not been satisfied: (a) there shall have occurred a change in the current interpretation by the staff of the Commission which permits the Notes issued pursuant to the Exchange Offer in exchange for the Old Notes to be offered for resale, resold and otherwise transferred by the Holders thereof (other than broker- dealers and any such Holder which is an "affiliate" of the Company within the meaning of Rule 405 promulgated under the Securities Act) without compliance with the registration and prospectus delivery provisions of the Securities Act, provided that such Notes are acquired in the ordinary course of such Holders' business and such Holders have no arrangement or understanding with any person to participate in the distribution of such Notes; or (b) any law, statute, rule or regulation shall have been adopted or enacted which, in the judgment of the Company, would reasonably be expected to impair its ability to proceed with the Exchange Offer; or (c) a stop order shall have been issued by the Commission or any state securities authority suspending the effectiveness of the Registration Statement, or proceedings shall have been initiated or, to the knowledge of the Company, threatened for that purpose, or any governmental approval has not been obtained, which approval the Company shall, in its sole discretion, deem necessary for the consummation of the Exchange Offer as contemplated hereby; or (d) the Company shall have received an opinion of counsel experienced in such matters to the effect that there exists any actual or threatened legal impediment (including a default or prospective default under an agreement, indenture or other instrument or obligation to which the Company is a party or by which it is bound) to the consummation of the transactions contemplated by the Exchange Offer. If the Company determines in its sole and absolute discretion that any of the foregoing events or conditions has occurred or exists or has not been satisfied, it may, subject to applicable law, terminate the Exchange Offer 26 (whether or not any Old Notes have theretofore been accepted for exchange) or waive any such condition or otherwise amend the terms of the Exchange Offer in any respect. If such waiver or amendment constitutes a material change to the Exchange Offer, the Company will promptly disclose such waiver or amendment by means of a prospectus supplement that will be distributed to the registered Holders of the Old Notes and will extend the Exchange Offer to the extent required by Rule 14e-1 promulgated under the Exchange Act. The foregoing conditions are for the sole benefit of the Company and may be waived by the Company, in whole or in part, in its reasonable discretion. Any determination made by the Company concerning an event, development or circumstance described or referred to above will be final and binding on all parties. ACCEPTANCE OF THE OLD NOTES FOR EXCHANGE; DELIVERY OF THE NOTES Upon the terms and subject to the conditions of the Exchange Offer, the Company will accept all Old Notes validly tendered and not withdrawn prior to 5:00 P.M., New York City time, on the Expiration Date. The Company will deliver the Notes in exchange for the Old Notes promptly following the Expiration Date. Subject to the conditions set forth under the caption "--Conditions to the Exchange Offer," delivery of Notes in exchange for Old Notes tendered and accepted for exchange pursuant to the Exchange Offer will be made only after timely receipt by the Exchange Agent of certificates for the Old Notes or a Book-Entry Confirmation of a book-entry transfer of Old Notes into the Exchange Agent's account at DTC, including an Agent's Message if the tendering Holder does not deliver a Letter of Transmittal, a completed Letter of Transmittal, or, in the case of a book-entry transfer, an Agent's Message in lieu of the Letter of Transmittal and any other documents required by such Letter of Transmittal. Accordingly, the delivery of Notes might not be made to all tendering Holders at the same time, and will depend upon when certificates for the Old Notes, Book-Entry Confirmations with respect to the Old Notes and other required documents are received by the Exchange Agent. Subject to the terms and conditions of the Exchange Offer, the Company will be deemed to have accepted for exchange, and thereby exchanged, any Old Notes validly tendered and not withdrawn as, if and when the Company gives oral or written notice to the Exchange Agent of the Company's acceptance of such Old Notes for exchange pursuant to the Exchange Offer. The Exchange Agent will act as agent for the Company for the purpose of receiving tenders of the Old Notes, the Letters of Transmittal and related documents, and as agent for the tendering Holders for the purpose of receiving the Old Notes, the Letters of Transmittal and related documents and transmitting Notes which will not be held in global form by DTC or a nominee of DTC to validly tendered Holders. Such exchange will be made promptly after the Expiration Date. If for any reason whatsoever, acceptance for exchange or the exchange of any Old Notes tendered pursuant to the Exchange Offer is delayed (whether before or after the Company's acceptance for exchange of Old Notes) or the Company extends the Exchange Offer or is unable to accept for exchange or exchange the Old Notes tendered pursuant to the Exchange Offer, then, without prejudice to the Company's rights set forth herein, the Exchange Agent may, nevertheless, on behalf of the Company and subject to Rule 14e-1(c) promulgated under the Exchange Act, retain the tendered Old Notes and such Old Notes may not be withdrawn except to the extent tendering holders are entitled to withdrawal rights as described under the caption "--Withdrawal Rights." Pursuant to an Agent's Message or a Letter of Transmittal, a Holder of the Old Notes will represent, warrant and agree in the Letter of Transmittal that it has full power and authority to tender, exchange, sell, assign and transfer Old Notes, that the Company will acquire good, marketable and unencumbered title to the tendered Old Notes, free and clear of all liens, restrictions, charges and encumbrances, and the Old Notes tendered for exchange are not subject to any adverse claims or proxies. The Holder also will warrant and agree that it will, upon request, execute and deliver any additional documents deemed by the Company or the Exchange Agent to be necessary or desirable to complete the exchange, sale, assignment, and transfer of the Old Notes tendered pursuant to the Exchange Offer. If any tendered Old Notes are not accepted for exchange because of an invalid tender, the occurrence of certain other events set forth herein or otherwise, any such unaccepted Old Notes will be returned, at the 27 Company's expense, to the tendering Holder thereof as promptly as practicable after the expiration or termination of the Exchange Offer. WITHDRAWAL RIGHTS Tenders of Old Notes may be withdrawn at any time prior to the Expiration Date. For a withdrawal to be effective, a written notice of withdrawal must be received by the Exchange Agent at the address set forth below under the caption "--Exchange Agent." Any such notice of withdrawal must specify the name of the person having tendered the Old Notes to be withdrawn, identify the Old Notes to be withdrawn (including the principal amount of such Old Notes), and (where certificates for Old Notes have been transmitted) specify the name in which such Old Notes are registered, if different from that of the withdrawing Holder. If certificates for Old Notes have been delivered or otherwise identified to the Exchange Agent, then, prior to the release of such certificates the withdrawing Holder must also submit the serial numbers of the particular certificates to be withdrawn and a signed notice of withdrawal with signatures guaranteed by an Eligible Institution unless such Holder is an Eligible Institution. If the Old Notes have been tendered pursuant to the procedure for book-entry transfer described above, any notice of withdrawal must specify the name and number of the account at DTC to be credited with the withdrawn Old Notes and otherwise comply with the procedures of such facility. All questions as to the validity, form and eligibility (including time of receipt) of such notices will be determined by the Company, whose determination shall be final and binding on all parties. Any Old Notes so withdrawn will be deemed not to have been validly tendered for exchange for purposes of the Exchange Offer. Any Old Notes which have been tendered for exchange but which are not exchanged for any reason will be returned to the Holder thereof without cost to such Holder (or in the case of the Old Notes tendered by book-entry transfer into the Exchange Agent's account at DTC pursuant to the book-entry transfer procedures described above, such Old Notes will be credited to an account maintained with DTC for the Old Notes) as soon as practicable after withdrawal, rejection of tender or termination of the Exchange Offer. Properly withdrawn Old Notes may be retendered by following one of the procedures described above under the caption "--Procedures for Tendering" above at any time on or prior to the Expiration Date. EXCHANGE AGENT The Bank of New York has been appointed as Exchange Agent for the Exchange Offer. All correspondence in connection with the Exchange Offer and the Letter of Transmittal should be addressed to the Exchange Agent as follows: By Registered or Certified Mail, or Hand Delivery or Overnight Courier 101 Barclay Street Reorganization Section/7E New York, New York 10286 Facsimile Transmission: (212) Confirm by Telephone: (212) Requests for additional copies of the Prospectus or the Letter of Transmittal should be directed to the Exchange Agent. PAYMENT OF EXPENSES The Company has not retained any dealer-manager or similar agent in connection with the Exchange Offer and will not make any payments to brokers, dealers or others for soliciting acceptances of the Exchange Offer. 28 The Company, however, will pay reasonable and customary fees and reasonable out-of-pocket expenses to the Exchange Agent in connection therewith. The Company will also pay the cash expenses to be incurred in connection with the Exchange Offer, including accounting, legal, printing, and related fees and expenses. CONSEQUENCES OF FAILURE TO EXCHANGE Upon consummation of the Exchange Offer, certain rights under the Registration Rights Agreement, including registration rights and the right to receive the contingent increases in interest rate, will terminate. Old Notes that are not exchanged for Notes pursuant to the Exchange Offer will remain restricted securities within the meaning of Rule 144 under the Securities Act. Accordingly, such Old Notes may be resold only (i) to the Company or any subsidiary thereof, (ii) to a qualified institutional buyer in compliance with Rule 144A under the Securities Act, (iii) to an institutional accredited investor that, prior to such transfer, furnishes to the Trustee a signed letter containing certain representations and agreements relating to the restrictions on transfer of the Old Notes (the form of which letter can be obtained from the Trustee) and, if such transfer is in respect of an aggregate principal amount of Old Notes in the time of transfer of less than $100,000, an opinion of counsel acceptable to the Company that such transfer is in compliance with the Securities Act, (iv) pursuant to the exemption from registration provided by Rule 144 under the Securities Act (if available) or (v) pursuant to an effective registration statement under the Securities Act. The liquidity of the Old Notes could be adversely affected by the Exchange Offer. See "Risk Factors--Consequences of Failure to Exchange." ACCOUNTING TREATMENT The Notes will be recorded at the same carrying value as the Old Notes, as reflected in the Company's accounting records on the date of the exchange. Accordingly, no gain or loss for accounting purposes will be recognized. See "Certain United States Federal Income Tax Considerations." 29 USE OF PROCEEDS The Company will not receive any cash proceeds from the issuance of the Notes in the Exchange Offer. In consideration for issuing the Notes as contemplated in this Prospectus, the Company will receive Old Notes in like principal amount. The form and terms of the Notes are identical in all material respects to the form and terms of the Old Notes, except for certain transfer restrictions and registration rights relating to the Old Notes and except for certain provisions providing for an increase in the interest rate on the Old Notes under certain circumstances relating to the timing of the Exchange Offer. The Old Notes surrendered in exchange for the Notes will be retired and canceled and cannot be reissued. Accordingly, issuance of the Notes will not result in any increase in the outstanding debt of the Company. The net proceeds to the Company from the Offering were $465,500,000 with respect to the Old Senior Notes and approximately $365,629,948 with respect to the Old Senior Discount Notes, in each case, after deducting selling discounts, commissions and estimated offering expenses. The net proceeds to the Company from the Offering were used to repay $615 million of the $1.25 billion borrowed under the Old Credit Facility and to repay $215 million of the $345.5 million principal amount of the NAHI Bridge Note. 30 CAPITALIZATION The following table sets forth the combined capitalization of the Company at September 30, 1997, (i) on a historical basis, and (ii) pro forma to reflect the Offering.
SEPTEMBER 30, 1997 ---------------------- ACTUAL PRO FORMA ---------- ---------- (IN THOUSANDS) CASH AND CASH EQUIVALENTS.............................. $ 100,267 $ 44,588 ========== ========== LONG-TERM DEBT (INCLUDING CURRENT PORTION): Other debt (1)....................................... $ 28,658 $ 24,559 Old Credit Facility.................................. 1,250,000 635,000 Senior Notes......................................... 475,000 Senior Discount Notes (2)............................ -- 375,000 NAHI Bridge Note..................................... 345,514 74,835 Fox Subordinated Note................................ 104,573 108,672 ---------- ---------- Total long-term obligations........................ $1,728,745 $1,693,066 ---------- ---------- Series A Preferred Stock, $0.001 par value; 500,000 shares authorized; 345,000 shares issued and outstanding (3)....................................... $ 345,000 $ 345,000 STOCKHOLDERS' EQUITY: Preferred Stock, $0.001 par value; 19,500,000 shares authorized; no shares issued or outstanding......... -- -- Class A Common Stock, $0.001 par value; 16,000,000 shares authorized; 160,000 shares issued and outstanding (4)..................................... -- -- Class B Common Stock, $0.001 par value; 16,000,000 shares authorized; 15,840,000 shares issued and outstanding......................................... 16 16 Contributed capital.................................. 61,032 61,032 Cumulative translation adjustment.................... (877) (877) Retained earnings.................................... 17,671 17,671 ---------- ---------- Total stockholders' equity......................... $ 77,842 $ 77,842 ---------- ---------- Total capitalization............................. $2,151,587 $2,115,908 ========== ==========
- -------- (1) Actual includes $14.8 million of indebtedness of Saban and its subsidiaries, $6.4 million of indebtedness owed by IFE and $7.5 million of indebtedness to Fox Broadcasting. (2) Reflects estimated gross proceeds from the issuance of the Senior Discount Notes. (3) News Corp. and News Publishing Australia Limited ("NPAL") have jointly and severally agreed that, upon the occurrence and during the continuation of an event of default under the Series A Preferred Stock or liquidation, dissolution, winding up or other similar event of the Company, News Corp. or NPAL will advance the Company all amounts necessary to redeem in full, or pay the liquidation distribution on, all of the outstanding Series A Preferred Stock. See "Ownership and Control of the Company--The Series A Preferred Stock." (4) Does not include an aggregate of 646,548 shares of Class A Common Stock reserved for issuance upon the exercise of options granted to certain members of management of the Company. 31 UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION The following unaudited pro forma consolidated condensed statements of operations for the twelve months ended June 30, 1997 and the three months ended September 30, 1997 reflect, on a consolidated basis, the results of operations of the Company as if the IFE Acquisition and related financing and the Reorganization had occurred as of the beginning of each period presented. The pro forma consolidated statements of operations, prepared by the Company's management, are based on the historical financial statements of the Company and IFE giving effect to the adjustments described in the accompanying notes to the unaudited pro forma consolidated statements of operations. These pro forma consolidated statements of operations may not be indicative of the results that actually would have occurred if the IFE Acquisition and Reorganization had occurred on the dates indicated or which may be obtained in the future. The pro forma consolidated financial statements should be read in conjunction with the audited financial statements and notes thereto of the Company and IFE contained elsewhere herein. A preliminary allocation of the purchase price of IFE has been made to major categories of assets and liabilities for purposes of the pro forma financial statements based upon available information and assumptions that the Company's management believes are reasonable. However, such amounts are subject to change and final amounts may differ. PRO FORMA CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS FOR THE TWELVE MONTHS ENDED JUNE 30, 1997
THE COMPANY IFE PRO FORMA PRO FORMA ACTUAL ACTUAL ADJUSTMENTS CONSOLIDATED ----------- -------- ----------- ------------ (IN THOUSANDS) Net revenues................. $307,820 $379,242 $(72,444)(1) $614,618 Costs and expenses: Production and programming............... 180,381 218,804 (96,751)(1) 306,557 4,123 (2) Selling, general and administrative............ 62,466 99,128 (20,094)(1) 141,500 Fox Kids Network affiliate participations............ 6,194 -- -- 6,194 Amortization of intangible assets ................... -- 2,204 (2,204)(1) 41,819 41,819 (2) -------- -------- -------- -------- Operating (loss) income...... 58,779 59,106 663 118,548 Equity in loss of unconsolidated affiliate.... 1,546 -- -- 1,546 Other (income) expense....... -- 10,443 (10,742)(1) (299) Interest expense............. 2,226 12,445 (11,503)(1) 148,966 11,782 (3) 134,016 (4) -------- -------- -------- -------- Income (loss) before provision for income taxes.. 55,007 36,218 (122,890) (31,665) Provision (benefit) for income taxes................ 14,567 15,811 (32,159)(5) (1,781) -------- -------- -------- -------- Net income (loss)............ $ 40,440 $ 20,407 $(90,731) $(29,884) ======== ======== ======== ======== Net loss attributable to common shares............... $ 40,440 $(60,934) ======== ======== Net loss per common share.... $ 2.53 $ (3.81) ======== ======== Weighted average shares outstanding................. 16,000 16,000 ======== ========
32 PRO FORMA CONSOLIDATED CONDENSED STATEMENT OF OPERATIONS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1997
THE COMPANY PRO FORMA PRO FORMA ACTUAL ADJUSTMENTS CONSOLIDATED ----------- ----------- ------------ (IN THOUSANDS) Net revenues............................ $122,946 $ 24,485(6) $147,431 Costs and Expenses: Production and programming............ 68,889 10,805(6) 79,694 Selling, general and administrative... 27,244 6,404(6) 33,648 Fox Kids Network affiliate participations....................... (448) -- (448) Amortization of intangible assets .... 6,969 3,485(2) 10,454 -------- -------- -------- Operating income........................ 20,292 3,791 24,083 Equity in loss of unconsolidated affiliate.............................. 1,184 -- 1,184 Other expense........................... 282 -- 282 Interest expense........................ 18,814 74(6) 38,306 19,418(4) -------- -------- -------- Loss before provision for income taxes.. 12 (15,701) (15,689) Provision (benefit) for income taxes.... 1,187 (4,886)(5) (3,699) -------- -------- -------- Net loss................................ $ (1,175) $(10,815) $(11,990) ======== ======== ======== Net loss attributable to common shares.. $ (6,364) $(19,753) ======== ======== Net loss per common share............... $ (.40) $ (1.23) ======== ======== Weighted average shares outstanding..... 16,000 16,000 ======== ========
33 NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION (1) The Company plans to dispose of IFE's production and live entertainment businesses and IFE's interests in cable and international networks not directly related to The Family Channel. The operations of these businesses have been eliminated from the pro forma consolidated condensed statements of operations and will be excluded from future operating results; assets of these businesses are reflected in historical financial statements as assets held for sale. (2) The IFE Acquisition was accounted for under the purchase method of accounting. The total purchase price of approximately $1.9 billion (including payoff of existing IFE credit facilities) was allocated to the tangible and intangible assets acquired and liabilities assumed by the Company based upon their respective fair values as of the acquisition date. The pro forma statements of operations reflect the amortization of intangible assets using a 40-year life and additional depreciation expense resulting from the valuation of property and equipment acquired from IFE. (3) In connection with the Reorganization, the Company issued the Fox Subordinated Note in exchange for a $50 million interest in the LLC and $58.6 million of amounts receivable from the LLC. The pro forma statements of operations reflect the interest expense on the Fox Subordinated Note using the interest rate of 10.427% as if the Reorganization had occurred as of the beginning of each period presented. (4) In connection with the IFE Acquisition, the Company incurred indebtedness under the Old Credit Facility of $1.25 billion and issued the NAHI Bridge Note in the amount of $345.5 million. Debt issue costs of $8.8 million were incurred in connection with the establishment of the Old Credit Facility. The proceeds from those borrowings were used to finance the IFE Acquisition and repay certain indebtedness of the Company and IFE. The pro forma consolidated statements of operations reflect the interest expense on those borrowings, the amortization of the debt issue costs and the elimination of interest expense associated with the obligations repaid as if the IFE Acquisition had occurred as of the beginning of each period presented. The pro forma interest charge was based on the 10.427% interest rate for the NAHI Bridge Note and the 7.63% interest rate in effect at the time of the IFE Acquisition for the Old Credit Facility. A change of 100 basis points in the interest rate for the Old Credit Facility would change the pro forma interest charge by $12.5 million. (5) Reflects the income tax effect of the pro forma adjustments. (6) Reflects the on-going results of operations for IFE for the period July 1, 1997 to July 31, 1997. The operations of IFE's production and live entertainment businesses and IFE's interests in cable and international networks not directly related to The Family Channel have been excluded. IFE's on-going results of operations subsequent to July 31, 1997 are consolidated with the results of the Company. 34 SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA The selected financial data of the Company set forth below as of June 30, 1996 and June 30, 1997, for the eight months ended June 30, 1996 and the fiscal year ended June 30, 1997 are derived from the Company's combined financial statements audited by Ernst & Young LLP, independent auditors, included elsewhere in this Prospectus. The selected financial data of the Company set forth below as of September 30, 1997 and for the three months ended September 30, 1996 and 1997 are derived from the Company's unaudited combined financial statements. The selected financial data of Saban set forth below as of May 31, 1995 and as of October 31, 1995 and for the year ended May 31, 1995 and for the five months ended October 31, 1995 are derived from Saban's consolidated financial statements audited by Ernst & Young LLP, independent auditors, included elsewhere in this Prospectus. The selected financial data of Saban presented below as of May 31, 1993 and 1994 and for each of the two years in the period ended May 31, 1994 are derived from Saban's consolidated financial statements audited by Ernst & Young LLP, independent auditors. The selected financial data of FCN Holding set forth below as of July 2, 1995 and as of October 31, 1995 and for the year ended July 2, 1995 and for the four months ended October 31, 1995 are derived from FCN Holding's consolidated financial statements audited by Ernst & Young LLP, independent auditors, included elsewhere in this Prospectus. The selected financial data of FCN Holding presented below at July 3, 1994 and for the year ended July 3, 1994 are derived from FCN Holding's consolidated financial statements audited by Ernst & Young LLP, independent auditors. The selected financial data of FCN Holding presented below at June 27, 1993, and for the year ended June 27, 1993, are derived from FCN Holding's unaudited consolidated financial statements. The unaudited consolidated financial statements from which such selected financial data are derived include all adjustments, consisting of only normal recurring accruals, which management considers necessary for a fair presentation. The selected financial data presented below and under "Management's Discussion and Analysis of Financial Condition and Results of Operations" should be read in conjunction with the consolidated and combined financial statements, including the notes thereto, appearing elsewhere in this Prospectus. 35 THE COMPANY
EIGHT MONTHS THREE MONTHS THREE MONTHS ENDED ENDED ENDED JUNE 30, YEAR ENDED SEPTEMBER 30, SEPTEMBER 30, 1996 JUNE 30, 1997 1996 1997 -------- ------------- ------------- ------------- (IN THOUSANDS) STATEMENTS OF OPERATIONS DATA: Net revenues............... $191,621 $307,820 $63,801 $122,946 Costs and expenses: Production and programming............. 98,937 180,381 30,384 68,889 Selling, general and administrative.......... 23,072 62,466 12,513 27,244 Fox Kids Network affiliate participations.......... 8,853 6,194 4,177 (448) Amortization of intangible assets....... -- -- -- 6,969 -------- -------- ------- -------- Operating income........... 60,759 58,779 16,727 20,292 Investment advisory fee.... 10,000 -- -- -- Equity in loss of unconsolidated affiliate.. -- 1,546 -- 1,184 Other expense.............. -- -- -- 282 Interest expense........... 885 2,226 648 18,814 -------- -------- ------- -------- Income before income tax expense................... 49,874 55,007 16,079 12 Income tax expense......... 18,274 14,567 4,635 1,187 -------- -------- ------- -------- Net income (loss).......... $ 31,600 $ 40,440 $11,444 $ (1,175) ======== ======== ======= ======== Net income (loss) attributable to common shareholders.............. $ 31,600 $ 40,440 $11,444 $ (6,364) ======== ======== ======= ======== Net income (loss) per common share.............. $ 1.98 $ 2.53 $ .72 $ (.40) ======== ======== ======= ======== Weighted average shares outstanding............... 16,000 16,000 16,000 16,000 ======== ======== ======= ========
JUNE 30, ----------------- SEPTEMBER 30, 1996 1997 1997 -------- -------- ------------- (IN THOUSANDS) BALANCE SHEET DATA: Cash and cash equivalents..................... $ 16,044 $ 28,877 $ 100,267 Programming costs, less accumulated amortization................................. 181,427 235,575 384,550 Total assets.................................. 336,270 412,401 2,502,633 Long-term obligations (including current maturities).................................. 101,487 116,264 1,728,745 Stockholders' equity.......................... 72,831 132,687 77,842
36 SABAN ENTERTAINMENT, INC.
FIVE MONTHS YEAR ENDED MAY 31, ENDED ------------------------- OCTOBER 31, 1993 1994 1995 1995 ------- -------- -------- ----------- (IN THOUSANDS) STATEMENTS OF OPERATIONS DATA: Revenues(1)............................. $57,244 $ 84,372 $242,468 $105,130 Costs and expenses: Production and programming............ 39,703 48,101 117,557 42,022 Selling, general and administrative... 6,255 8,933 51,894 11,538 ------- -------- -------- -------- Operating income........................ 11,286 27,338 73,017 51,570 Interest expense........................ 1,279 2,337 1,315 539 ------- -------- -------- -------- Income before provision for income taxes.................................. 10,007 25,001 71,702 51,031 Provision for income taxes.............. 1,600 8,201 27,027 14,289 ------- -------- -------- -------- Net income.............................. $ 8,407 $ 16,800 $ 44,675 $ 36,742 ======= ======== ======== ======== AS OF MAY 31, AS OF ------------------------- OCTOBER 31, 1993 1994 1995 1995 ------- -------- -------- ----------- (IN THOUSANDS) BALANCE SHEET DATA: Cash and cash equivalents............... $ 1,554 $ 3,849 $ 14,584 $ 16,207 Programming costs, less accumulated am- ortization............................. 60,279 85,079 115,873 118,210 Total assets............................ 94,916 136,967 218,197 207,479 Long-term obligations (including current maturities)............................ 28,933 34,023 5,623 5,605 Stockholders' equity.................... 36,648 53,253 58,112 94,971
37 FCN HOLDING, INC.
FOUR YEAR ENDED MONTHS ---------------------------- ENDED JUNE 27, JULY 3, JULY 2, OCTOBER 31, 1993 1994 1995 1995 -------- -------- -------- ----------- (IN THOUSANDS) STATEMENTS OF OPERATIONS DATA: Net revenues(1)..................... $ 85,729 $130,600 $168,871 $46,286 Costs and expenses: Production and programming........ 67,804 98,725 109,259 29,698 Fees and costs to a related party............................ 14,682 20,861 24,713 7,313 Selling, general and administrative................... 3,810 3,579 5,202 2,566 Fox Kids Network affiliate participations................... -- -- 11,523 6,883 -------- -------- -------- ------- Operating income (loss)(2).......... (567) 7,435 18,174 (174) Interest expense.................... 2,017 2,218 1,630 145 -------- -------- -------- ------- Income (loss) before provision for income taxes....................... (2,584) 5,217 16,544 (319) Provision for income taxes.......... -- -- -- -- -------- -------- -------- ------- Net income (loss)................... $ (2,584) $ 5,217 $ 16,544 $ (319) ======== ======== ======== ======= AS OF ----------------------------------------- JUNE 27, JULY 3, JULY 2, OCTOBER 31, 1993 1994 1995 1995 -------- -------- -------- ----------- (IN THOUSANDS) BALANCE SHEET DATA: Cash and cash equivalents........... $ 304 $ 268 $ -- $ 317 Programming costs, less accumulated amortization....................... 22,245 17,084 26,143 27,085 Total assets........................ 39,476 35,950 49,816 52,807 Long-term obligations (including current maturities)................ 41,416 27,163 10,686 8,727 Stockholders' deficit............... (25,575) (20,356) (3,811) (4,130)
38 NOTES TO SELECTED HISTORICAL FINANCIAL DATA - -------- (1) Includes revenues recognized by Saban from FCN and by FCN from Saban as set forth below:
FIVE FOUR MONTHS MONTHS FISCAL YEAR ENDED ENDED ---------------------- OCTOBER 31, OCTOBER 31, 1993 1994 1995 1995 1995 ------ ------- ------- ----------- ----------- (IN THOUSANDS) Saban revenues from FCN..... $2,535 $10,483 $16,228 $9,651 n/a FCN revenues from Saban..... -- 885 14,662 n/a $973
(2) Under agreements between FCN and Fox Broadcasting, for periods prior to June 1, 1995, FCN paid administrative and other fees to Fox Broadcasting. Effective June 1, 1995, Fox Broadcasting assigned to the Company its rights to such payments accrued thereafter. Amounts expensed under these agreements were $13.5 million, $19.8 million, $26.9 million and $9.1 million, for the years ended June 30, 1993, 1994 and 1995 and the four months ended October 31, 1995, respectively. 39 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS INTRODUCTION The Company's current principal operations are conducted through FCN, Saban and IFE. FCN commenced operations with the launch, in September 1990, of the Fox Kids Network, which is currently the top-rated children's-oriented broadcast television network in the United States. Saban, which commenced business in the mid-1980s, is currently one of the largest suppliers of children's television programming in the world. IFE operates The Family Channel, one of the largest cable television networks in the United States, reaching approximately 95% of all U.S. cable and satellite television households. FCN Holding (a parent of FCN) and Saban formed a joint venture pursuant to agreements entered into on November 1, 1995. Under the terms of the agreements relating to the joint venture, between November 1, 1995 (the Effective Date) and August 1, 1997 (the date of the Reorganization), each of Saban and FCN was operated by its respective management subject to the overall supervision of a governing committee comprised of an equal number of representatives of each of FCN and Saban. As a result of the formation of the joint venture and the common management of the joint venture business, the respective assets, liabilities and operations of Saban, FCN Holding and the LLC have been combined at historical cost from and after November 1, 1995. The Company was incorporated in August 1996 as a holding company of FCN Holding, Saban and their respective subsidiaries. The Reorganization was effected on August 1, 1997. The Company acquired a controlling interest in IFE on August 1, 1997 and completed the IFE Acquisition on September 4, 1997. The IFE Acquisition was accounted for using the purchase accounting method, and, consequently, the historical financial statements included herein do not reflect the results of operations of IFE prior to the date the Company first acquired a controlling interest in IFE on August 1, 1997. In connection with the IFE Acquisition, the Company decided that IFE's production and live entertainment businesses are not strategic to the Company. The Company intends to sell or otherwise discontinue use of certain of these assets which generated $111.5 million in revenues and $150.4 million in expenses in the twelve month period ended June 30, 1997. These assets include certain of the assets of MTM Entertainment, Inc. and its subsidiaries ("MTM"), FiT TV Partnership ("FiT TV") and certain other assets unrelated to the operations of The Family Channel, and are reflected in financial statements for the three months ended September 30, 1997 as assets held for sale; the operations of such businesses will be excluded from future operating results. Included in this Prospectus are (i) pro forma consolidated statements of operations of the Company for the year ended June 30, 1997 and the three months ended September 30, 1997, which on a hypothetical basis reflect the accounts of the Company and IFE as if the IFE Acquisition had occurred at the beginning of each period presented, (ii) the consolidated financial statements of Saban covering the two year period ended May 31, 1995 and the five month period ended October 31, 1995 (the close of business on the date prior to the Effective Date), (iii) the consolidated financial statements of FCN Holding covering the two year period ended July 2, 1995, and the four month period ended October 31, 1995, (iv) the combined financial statements of the Company for the eight month period commencing on the Effective Date and ending June 30, 1996, for the year ended June 30, 1997 and the three months ended September 30, 1997, and (v) the consolidated financial statements of IFE for the three year period ended December 31, 1996 and the six month period ended June 30, 1997. The financial statements of the Company for the eight months ended June 30, 1996 are not comparable to the financial statements of FCN Holding or Saban prior to the Effective Date. Subsequent to the Effective Date, the operations of the Company for the first time included both FCN Holding and Saban, and thus the combined profit for that period can be attributable to the results of both operations. In addition, commencing on the Effective Date, all revenues between FCN and Saban have been eliminated in the combined financial statements. The financial statements of the Company for the year ended June 30, 1997 are not comparable to the eight month period ended June 30, 1996 due to the different lengths of the time periods compared and because neither period includes the operations of IFE. In addition, the financial statements of the Company as of and for the three 40 months ended September 30, 1997 (which included the results of operations of IFE from August 1, 1997) are not comparable to the three month period ended September 30, 1996 as the prior period did not include the operations of IFE. The following discussion provides information and analysis with respect to the results of operations reflected in the financial statements included in this Prospectus, as well as the liquidity and capital resources of the Company. This discussion should be read in conjunction with the historical and pro forma financial statements and related notes, "Selected Historical Consolidated Financial Data" and "Formation of the Company," included elsewhere in this Prospectus. SIGNIFICANT ACCOUNTING FACTORS Use of Estimates As is industry practice, management has made a number of estimates and assumptions relating to the amortization of programming costs and the reporting of assets and liabilities in the preparation of the financial statements discussed herein. Actual results could differ materially from these estimates. Management periodically reviews and revises its estimates of future airings and revenues as necessary, which may result in revised amortization of its programming costs. Results of operations may be significantly affected by the periodic adjustments in such amortization. Revenue Recognition and Seasonality Children's television programming revenues have historically represented a significant portion of the Company's total revenues, and, for the fiscal year ended June 30, 1997 and the three months ended September 30, 1997, accounted for approximately 90% and 52%, respectively, of the Company's consolidated revenues. See "--Results of Operations." Giving effect to the IFE Acquisition as if it had occurred on July 1, 1996, children's television programming revenues accounted for approximately 45% and 43% of the Company's pro forma consolidated revenues for the fiscal year ended June 30, 1997 and the three months ended September 30, 1997, respectively. Revenues from television programming lease agreements are recognized when the lease period begins, collectibility is reasonably assured and the product is available pursuant to the terms of the lease agreement. Advertising revenue is recognized as earned in the period in which the advertising commercials are broadcast. For this reason, significant fluctuations in the Company's revenues and net income can occur from period to period depending upon the availability dates of programs and advertising revenues. In the United States, revenues from advertising targeted at children are concentrated in the fourth calendar quarter, and in the international markets, a significant portion of revenues are recognized in April and October. While 21% of the Company's consolidated revenues and 28% of the Company's net income for the fiscal year ended June 30, 1997 ("Fiscal 1997") were recognized in the first fiscal quarter in part as the result of significant revenues from merchandising realized by the Company in that quarter, the Company expects that its second and fourth fiscal quarters may contribute a disproportionate share of total revenues and net income for any fiscal year. During the fiscal year ended June 30, 1997, 36% and 24% of the Company's consolidated revenues were recognized in the second fiscal quarter and fourth fiscal quarter, respectively, of that year. See "Risk Factors-- Seasonality." Increased International Focus In recent years, revenues derived from international operations have become increasingly significant to the Company (representing 35% and 30%, respectively, of the Company's consolidated revenues for the fiscal year ended June 30, 1997 and the three months ended September 30, 1997). As part of its business strategy, the Company intends to expand its international program production and distribution activities. See "Business--Business Strategies" and "--Distribution--International Channels." Certain of these activities, such as the rollout of new international channels, may require material marketing and other expenses in advance of the receipt of related revenues, thereby adversely affecting the Company's results of operations as these activities are expanded and the international markets are developed. 41 RESULTS OF OPERATIONS THE COMPANY The following tables set forth, for the periods indicated, certain data with respect to revenues, and costs and expenses as a percentage of total revenues: REVENUE SUMMARY
SABAN ENTERTAINMENT, INC. FCN HOLDING, INC. ------------------------------------ -------------------------------------- FIVE FOUR YEAR ENDED MAY 31, MONTHS YEAR ENDED MONTHS ------------------------ ENDED -------------------------- ENDED OCTOBER 31, JUNE 27, JULY 3, JULY 2, OCTOBER 31, 1993 1994 1995 1995 1993 1994 1995 1995 ------- ------- -------- ----------- -------- -------- -------- ----------- (IN THOUSANDS) Revenues: Children's programming: U.S. television distribution(1)....... $ 8,837 $11,995 $ 31,529 $ 14,823 $80,008 $124,666 $148,725 $42,845 Foreign television distribution(2)....... 27,060 16,367 29,944 19,931 -- -- -- -- Merchandising and licensing, home video and other ancillary revenues.... 4,037 32,274 164,273 65,772 5,721 5,934 20,146 3,441 ------- ------- -------- -------- ------- -------- -------- ------- Total.................. 39,934 60,636 225,746 100,526 85,729 130,600 168,871 46,286 ------- ------- -------- -------- ------- -------- -------- ------- Telefilms/Family programming: U.S. distribution...... 8,156 13,954 1,196 26 -- -- -- -- Foreign distribution... 9,154 9,782 15,526 4,578 -- -- -- -- ------- ------- -------- -------- ------- -------- -------- ------- Total.................. 17,310 23,736 16,722 4,604 -- -- -- -- ------- ------- -------- -------- ------- -------- -------- ------- Total Revenues.......... $57,244 $84,372 $242,468 $105,130 $85,729 $130,600 $168,871 $46,286 ======= ======= ======== ======== ======= ======== ======== =======
THE COMPANY --------------------------------------------------------------------- EIGHT PRO FORMA THREE THREE PRO FORMA MONTHS YEAR YEAR MONTHS MONTHS THREE MONTHS ENDED ENDED ENDED ENDED ENDED ENDED JUNE 30, JUNE 30, JUNE 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, 1996 1997 1997 1996 1997 1997 -------- -------- --------- ------------- ------------- ------------- (IN THOUSANDS) Revenues: Children's programming: U.S. television distribution(1)....... $ 85,883 $126,796 $126,796 $32,055 $ 34,256 $ 34,256 Foreign television distribution(2)....... 29,389 58,844 58,844 6,757 24,814 24,814 Merchandising and licensing, home video and other ancillary revenues.... 60,541 96,766 96,766 21,297 6,414 6,414 -------- -------- -------- ------- -------- -------- Total.................. 175,813 282,406 282,406 60,109 65,484 65,484 -------- -------- -------- ------- -------- -------- Telefilms/Family programming: U.S. distribution...... 4,474 3,574 30,828 35 4,273 5,619 Foreign distribution... 11,334 21,840 30,714 3,657 9,654 11,251 -------- -------- -------- ------- -------- -------- Total.................. 15,808 25,414 61,542 3,692 13,927 16,870 -------- -------- -------- ------- -------- -------- Domestic cable: Fox Family Channel(3).. -- -- 270,670 -- 43,535 65,077 -------- -------- -------- ------- -------- -------- Total Revenues.......... $191,621 $307,820 $614,618 $63,801 $122,946 $147,431 ======== ======== ======== ======= ======== ========
- -------- (1) Television distribution in the United States consists principally of advertising sales generated by FCN and barter advertising sales in syndication generated by Saban. (2) Foreign television distribution consists principally of cash transactions with foreign broadcasters. (3) Domestic cable consists principally of advertising revenues and subscriber fees. 42 COSTS AND EXPENSES AS A PERCENTAGE OF TOTAL REVENUES
SABAN ENTERTAINMENT, INC. FCN HOLDING, INC. ----------------------------------- ------------------------------------ FIVE FOUR YEAR ENDED MAY 31, MONTHS YEAR ENDED MONTHS ---------------------- ENDED ------------------------ ENDED OCTOBER 31, JUNE 27, JULY 3, JULY 2, OCTOBER 31, 1993 1994 1995 1995 1993 1994 1995 1995 ------ ------ ------ ----------- -------- ------- ------- ----------- Costs and expenses: Production and programming........... 69.4% 57.0% 48.5% 40.0% 79.1% 75.6% 64.7% 64.2% Affiliate participations........ -- -- -- -- -- -- 6.8 14.9 Fees and costs to a related party......... -- -- -- -- 17.1 16.0 14.6 15.8 Selling, general and administrative........ 10.9 10.6 21.4 11.0 4.4 2.7 3.1 5.5 Amortization of intangible assets..... -- -- -- -- -- -- -- -- ------ ------ ------ ---- ----- ---- ---- ----- Total costs and expenses.............. 80.3% 67.6% 69.9% 51.0% 100.6% 94.3% 89.2% 100.4% Operating income (loss)................. 19.7% 32.4% 30.1% 49.0% (0.6)% 5.7% 10.8% (0.4)%
THE COMPANY ---------------------------------------------------------------------------- PRO FORMA EIGHT MONTHS PRO FORMA THREE MONTHS THREE MONTHS THREE MONTHS ENDED YEAR ENDED YEAR ENDED ENDED ENDED ENDED JUNE 30, JUNE 30, JUNE 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, 1996 1997 1997 1996 1997 1997 ------------ ---------- ---------- ------------- ------------- ------------- Costs and expenses: Production and programming........... 51.6% 58.6% 49.9% 47.6% 56.0% 54.1% Affiliate participations........ 4.6 2.0 1.0 6.5 (.4) (.3) Selling, general and administrative........ 12.0 20.3 23.0 19.6 22.2 22.8 Amortization of intangible assets..... -- -- 6.8 -- 5.7 7.1 ---- ---- ---- ---- ---- ---- Total costs and expenses.............. 68.2% 80.9% 80.7% 73.7% 83.5% 83.7% Operating income ....... 31.8% 19.1% 19.3% 26.3% 16.5% 16.3%
Three months ended September 30, 1997 compared with the three months ended September 30, 1996 Revenues for the three months ended September 30, 1997 were $122.9 million as compared to $63.8 million for the three months ended September 30, 1996, an increase of $59.1 million. The increase in revenue is primarily due to two months of operations of IFE, acquired on August 1, 1997, which contributed revenues of $50.0 million. In addition, higher Sweet Valley High and library revenues and revenues from the Company's international channels, the first of which was launched in October 1996, contributed to the increase, offsetting lower revenues from Power Rangers. Production and programming costs as a percentage of total revenues increased to 56% for the three months ended September 30, 1997 from 48% for the three months ended September 30, 1996. The increase results primarily from a higher percentage of revenues generated by programming having a lower profit margin for the three months ended September 30, 1997 as compared to the three months ended September 30, 1996. Selling, general and administrative expenses increased to 22% of total revenues for the three months ended September 30, 1997 as compared to 20% for the three months ended September 30, 1996. The increase is due to expenses associated with the Company's international channels, higher marketing and promotion costs at Fox Children's Network and the inclusion of two months of operations of IFE. Fox Kids Network affiliate participation costs as a percentage of total revenues decreased from 6.5% for the three months ended September 30, 1996 to (.4%) for the three months ended September 30, 1997. This decrease is due to a loss at Fox Children's Network for the three months ended September 30, 1997 resulting from lower revenue levels, higher production and programming costs and increased selling, general and administrative expenses as compared to the three months ended September 30, 1996. Amortization of intangible assets results from the acquisition of IFE. The intangible assets resulting from the acquisition are being amortized over 40 years. Interest expense for the three months ended September 30, 1997 was $18.1 million as compared to $648,000 for the three months ended September 30, 1996. The increase is due to interest on the debt incurred in connection with the IFE Acquisition. The Company's provision for taxes for the period ended September 30, 1997 reflects the non-deductibility of amortization of intangible assets foreign withholding taxes. The effective tax rate excluding the amortization of intangible assets would have been 17% as compared to 29% for the three months ended September 30, 1996. The decrease is due primarily to losses generated by the Company's international channels. 43 Year ended June 30, 1997 compared with the eight months ended June 30, 1996 Revenues for the year ended June 30, 1997 were $307.8 million as compared to $191.6 million for the eight months ended June 30, 1996. For the year ended June 30, 1997, 23% of revenues were derived from Power Rangers as compared with 38% for the eight months ended June 30, 1996. The decrease in revenues from Power Rangers was offset by an increase in revenues from Big Bad BeetleBorgs and by $20 million of previously deferred revenue recognized during the year ended June 30, 1997 in connection with the settlement and termination of an output agreement with Warner Bros. Home Video. The Company has replaced the Warner Bros. Home Video agreement with a long term output agreement with Twentieth Century Fox Home Entertainment, Inc. ("Fox Video"). Production and programming costs (including costs in connection with the settlement and termination of an output agreement with Warner Bros. Home Video) as a percentage of total revenues increased to approximately 59% for the year ended June 30, 1997 as compared with 52% for the eight months ended June 30, 1996. This increase in production and programming costs as a percentage of revenues resulted principally from the reduction in Power Rangers revenues described above which have historically had a high profit margin. Selling, general and administrative expenses increased to 20% of total revenues for the year ended June 30, 1997 as compared to 12% for the eight months ended June 30, 1996. This increase resulted most significantly from an increase in overhead associated with the start-up of the Company's international channels. To a lesser extent, selling, general and administrative expenses increased at the Fox Kids Network as a result of greater marketing, promotional and publicity activities at the network and increased at the Company's Paris office as a result of the acquisition of the Paris-based Creativite & Developpement ("C&D") and Vesical Limited programming libraries. Fox Kids Network affiliate participation costs were approximately 2% for the year ended June 30, 1997 as compared to approximately 5% for the eight months ended June 30, 1996. The decrease in such costs can be attributed to lower profits at FCN Holding resulting principally from the increased selling, general and administrative expenses described above. The Company's effective tax rate for the year ended June 30, 1997 was 26%. The Company's effective tax rate for the eight months ended June 30, 1996 was 37%. This change is attributable to the non-deductible investment advisory fee in the eight months ended June 30, 1996. SABAN ENTERTAINMENT, INC. Five months ended October 31, 1995 Revenues for the five months ended October 31, 1995 were $105.1 million, of which approximately 66% represented revenues attributable to Power Rangers, as compared to 72% of Saban total revenues for the fiscal year ended May 31, 1995 ("Saban Fiscal 1995"). VR Troopers, Masked Rider and the European co- production Iznogoud each contributed approximately 6% of revenues for the five month period, and X-Men contributed just over 3%. Production and programming costs for the five months ended October 31, 1995 were $42.0 million, or 40% of total revenues for the period. Cost of sales for Saban Fiscal 1995, as a percentage of total revenues, was 48%. This improvement in production and programming costs as a percentage of revenues is attributable to an improvement in the gross profit margin on Power Rangers. Gross profit from Power Rangers in Saban Fiscal 1995 had been negatively impacted by costs of litigation which was resolved during Saban Fiscal 1995. Selling, general and administrative expenses for the five months ended October 31, 1995 were $11.5 million, or approximately 11% of total revenues for the period. Selling, general and administrative expenses for Saban Fiscal 1995, as a percentage of total revenues, were approximately 21%. This improvement in selling, general and administrative expenses as a percentage of revenues is attributable to the elimination of the contractual bonus 44 payable to Haim Saban and to a significant reduction in non-cash charges related to stock options, both of which are discussed further below. Excluding the effect of these items, selling, general and administrative expenses would have been approximately 9% of revenues for Saban Fiscal 1995. Saban's effective tax rate for the five months ended October 31, 1995 was 28%. The effective tax rate for Saban Fiscal 1995 was 38%. This change is attributable to an increase in foreign source revenues as a percentage of total revenues. Year ended May 31, 1995 ("Saban Fiscal 1995") compared with the year ended May 31, 1994 ("Saban Fiscal 1994") Revenues for Saban Fiscal 1995 increased 187% to $242.5 million from $84.4 million for Saban Fiscal 1994. This increase is primarily attributable to the success of Power Rangers, in particular, significant increases (687%) in toy, merchandising and licensing royalties and, to a lesser extent, increases in broadcast related revenues, home video royalties and ancillary revenues. During Saban Fiscal 1995, toy, merchandising and licensing royalties increased to $115.1 million from $13.4 million for the prior fiscal year, accounting for 64% of the increase in total revenues for the year. Home video royalties generated by Power Rangers in Saban Fiscal 1995 increased by $9.9 million, broadcast related revenues increased by $8.2 million, and ancillary revenues from the Power Rangers live stage tour (all of the revenues of which were realized in 1995), and the Power Rangers fan club, contributed another $13.0 million and $3.1 million, respectively, to the increase in revenues for the year. The series VR Troopers and Sweet Valley High, which began broadcast in the Fall of 1994, contributed another $22.7 million and $5.1 million, respectively, of revenues for Saban Fiscal 1995. Production and programming costs for Saban Fiscal 1995 decreased as a percentage of total revenues to 48% from 57% in Saban Fiscal 1994. Production and programming costs in Saban Fiscal 1995 increased 144% to $117.6 million from $48.1 million for Saban Fiscal 1994. Approximately 63% of this increase is attributable to increases in the amortization of production costs and accrual of profit participations in connection with the significant increase in revenues from the Power Rangers, described above. To a lesser extent, production and programming costs increased as a result of amortization of production costs related to the series VR Troopers and Sweet Valley High. Selling, general and administrative expenses for Saban Fiscal 1995 increased 483% to $51.9 million from $8.9 million for Saban Fiscal 1994. This increase is primarily attributable to $18.1 million in bonus compensation paid to Haim Saban pursuant to his previous employment agreement and the recognition of a non-cash $11 million charge related to stock options granted by Saban to certain of its executive officers. On December 22, 1995, Mr. Saban entered into a new employment agreement with the LLC pursuant to which his compensation has been fixed, commencing July 1, 1995, at $1.0 million per year. The charge with respect to options was required because of a provision in the option agreements which obligates Saban, so long as it remains private, to repurchase the option shares, and vested options, at fair market value upon termination of the optionee's employment. The balance of the increase in selling, general and administrative expenses for Saban Fiscal 1995 as compared to Saban Fiscal 1994 can be attributed to increased legal and personnel costs associated with the growth of Saban. Excluding the effect of Mr. Saban's bonus, and charges with respect to the options, selling, general and administrative expenses would have decreased as a percentage of total revenues from 11% in Saban Fiscal 1994 to 9% in Saban Fiscal 1995. Saban's effective tax rate for Saban Fiscal 1995 increased to 38% from 33% for Saban Fiscal 1994. This increase in the effective tax rate resulted from an increase in income generated in the United States as a percentage of total revenues. As noted in the notes to Saban's consolidated financial statements, earnings from Saban's foreign subsidiaries are considered to be indefinitely reinvested. Accordingly, no provision for U.S. Federal or state income taxes has been recorded in connection with foreign earnings. To the extent that Saban's international operations continue to expand, it can be expected that the effective tax rate would decline. 45 Year ended May 31, 1994 ("Saban Fiscal 1994") compared with the year ended May 31, 1993 ("Saban Fiscal 1993") Revenues for Saban Fiscal 1994 increased 48% to $84.4 million from $57.2 million for Saban Fiscal 1993. Of this increase, $41.7 million is attributable to the initial release in August 1993 of Power Rangers, and $6.4 million is attributable to an increase in revenues from telefilms, offset by a reduction in sales of library programming. During Saban Fiscal 1994, Saban realized significant increases in revenues generated by Power Rangers from worldwide home video sales, worldwide licensing and merchandising royalties and broadcast fees for Germany. Production and programming costs for Saban Fiscal 1994 decreased as a percentage of total revenues to 57% from 69% in Saban Fiscal 1993, but increased in dollars by 21% to $48.1 million from $39.7 million for Saban Fiscal 1993. Amortization of film costs and the accrual of profit participations related to Power Rangers increased $11.7 million in Saban Fiscal 1994 and amortization on telefilms increased by $6.1 million as a result of the increase in related revenues. The reduction in library revenues resulted in a decrease in amortization related thereto. Selling, general and administrative expenses for Saban Fiscal 1994 increased 41% to $8.9 million from $6.3 million for Saban Fiscal 1993, but as a percentage of total revenues remained relatively constant. This increase is the result primarily of increased personnel costs associated with Saban's revenue growth. Saban's effective tax rate for Saban Fiscal 1994 increased to 33% from 16% for Saban Fiscal 1993. This increase is primarily related to an increase in U.S. revenues resulting from the release of Power Rangers in September 1993. FCN HOLDING, INC. Four months ended October 31, 1995 Revenues for the four months ended October 31, 1995 were $46.3 million and cost of sales as a percentage of revenues was 64%. Production and programming costs as a percentage of revenues for the four month period are comparable to production and programming costs as a percentage of revenues for Fiscal 1995. The administrative fee payable to Fox Broadcasting is based upon a percentage of net advertising revenues, and thus varied in direct proportion to revenues. Selling, general and administrative expenses for the four month period increased from the prior year, both on a pro rata basis and as a percentage of revenues. This increase in selling, general and administrative expenses is attributable primarily to increased promotion costs of FCN. Year ended July 2, 1995 ("FCN Fiscal 1995") compared with the year ended July 3, 1994 ("FCN Fiscal 1994") Revenues for FCN Fiscal 1995 increased 29% to $168.9 million from $130.6 million for FCN Fiscal 1994. This increase of $38.3 million is attributable to an increase in net revenues from advertising sales of $24.0 million, with the balance related to an increase in ancillary revenues. This increase in revenue was primarily a result of the success of Power Rangers, and to a lesser extent, to the strength of the advertising market. Production and programming costs as a percentage of revenues were 65% for FCN Fiscal 1995 as compared to 76% for FCN Fiscal 1994. Cost of sales for FCN Fiscal 1995 increased 11% to $109.3 million from $98.7 million for FCN Fiscal 1994. While the overall increase in production and programming costs for FCN Fiscal 1995 is attributable to the 29% increase in revenues described above, the improvement in gross margin is attributable principally to the increase in revenues related to Power Rangers, which generated significantly higher gross margins than other FCN programming, as well as to a reduction in the number of Warner Bros.-supplied programming hours. 46 The administrative and other fees payable to Fox Broadcasting for FCN Fiscal 1995 increased 20% to $21.5 million from $17.9 million for FCN Fiscal 1994. The administrative fee is based, in part, upon net advertising revenues and the increase for the year is directly attributable to the increase in net advertising revenues for the year. The Fox Kids Network affiliation agreements provide that FCN is to pay to each of the Fox Kids Network affiliates (including Fox's owned and operated stations ("Fox O&O's")) participations, based upon the cumulative "net profits" (as defined) of FCN. FCN Fiscal 1995 was the first year in which FCN reached a level of defined net profits on a cumulative basis. Therefore, FCN Fiscal 1994 did not reflect a charge for affiliate participations. Since the net profits of FCN are distributed to the affiliates, no taxes have been provided on the income of FCN. LIQUIDITY AND CAPITAL RESOURCES In September 1997, the Company completed the IFE Acquisition. The total consideration for the IFE Acquisition was approximately $1.9 billion, including assumption of debt, and was financed by $1.25 billion borrowed under the Old Credit Facility, approximately $345 million through the issuance of Series A Preferred Stock to Liberty IFE and the balance through the NAHI Bridge Note. Of the net proceeds from the Offering of approximately $830 million, $215 million was used to repay a portion of the NAHI Bridge Note and the balance of $615 million was used to repay indebtedness under the Old Credit Facility. Approximately $105.8 million (including interest) was outstanding under the NAHI Bridge Note at December 31, 1997; however, no payments are due under the NAHI Bridge Note until March 2008. As part of the Offering, the Company amended the Old Credit Facility to include a $710 million facility, comprised of a seven-year amortizing term loan and a seven-year reducing revolving credit facility. The Amended Credit Facility is scheduled to terminate September 29, 2004. Borrowings under the Amended Credit Facility bear interest at the Company's option at a rate per annum equal to either LIBOR or a base rate plus an applicable interest rate margin. As of December 31, 1997, $75 million was available under the Amended Credit Facility for additional borrowings. As a result of the IFE Acquisition and the financing transactions described above, the Company's principal liquidity requirements arise from interest payments. Due to the amount of interest expense and amortization of intangible assets, the Company does not expect to have net income for fiscal 1998. The Company further anticipates certain seasonal working capital needs related to the development, production and acquisition of programming, the financing of accounts receivable and other related operating costs. The Company on a regular basis has had, and intends to continue to engage in, exploratory discussions concerning programming and other acquisition opportunities, and any such acquisition could result in additional capital requirements. The Company expects to incur capital expenditures of approximately $16 million over the next 24 months, including amounts to support its existing international channels as well as the launch of future international channels. Net cash used in operating activities of the Company during the year ended June 30, 1997, was $2.0 million and for the three months ended September 30, 1997, was $17.9 million. During the year ended June 30, 1997, the Company distributed an aggregate of $700,000 to non-Fox O&O Affiliates, and during the three months ended September 30, 1997, the Company distributed an aggregate of $100,000 to non-Fox O&O Affiliates. Net cash used in investing activities of the Company during the year ended June 30, 1997 and during the three months ended September 30, 1997, was $17.0 million and $1.295 billion, respectively. The Company's net cash flow used in investing activities for the year ended June 30, 1997 included $13.6 million incurred in connection with the purchase of U.S. and international programming and libraries and the purchase of a 90% interest in TV10, a cable network in Holland. The majority of the investing activity for the three months ended September 30, 1997 was related to the IFE Acquisition. 47 Net cash provided by financing activities of the Company during the year ended June 30, 1997 and during the three months ended September 30, 1997, was $31.9 million and $1.384 billion, respectively. The financing activities for the year ended June 30, 1997 consisted primarily of proceeds from bank borrowings, while the activities for the three months ended September 30, 1997 related to bank and other borrowings in connection with the IFE Acquisition. The Company's total unrestricted cash balances at September 30, 1997 were $44.6 million, which excludes proceeds from the Flextech stock, which was sold in September 1997. The Company believes that the $75 million of available borrowings, as of the closing of the Offering, under the Amended Credit Facility, together with cash flow from operations, should be sufficient to fund its operations and service its debt for the foreseeable future. NEW ACCOUNTING PRONOUNCEMENTS In June 1997, the FASB issued Statement No. 130, Reporting Comprehensive Income. The Statement establishes standards for the reporting and display of comprehensive income and its components in a full set of general purpose financial statements. The Statement applies to all enterprises that provide a full set of general-purpose financial statements. The Statement becomes effective for all financial statements for fiscal years beginning after December 15, 1997, with earlier application permitted. Further, in June 1997, the FASB issued Statement No. 131, Disclosures about Segments of an Enterprise and Related Information. The Statement changes the way public companies report segment information in annual financial statements and also requires those companies to report selected segment information in interim financial reports to shareholders. The proposal supersedes FASB Statement No. 14 on segments and does not apply to nonpublic enterprises or to not-for-profit organizations. The Statement becomes effective for all financial statements for fiscal years beginning after December 15, 1997, with earlier adoption permitted. The Company is currently reviewing those Statements and will apply such provisions as deemed appropriate. IMPACT OF YEAR 2000 The Year 2000 Issue is the result of computer programs being written using two digits instead of four to define the applicable year. Any of the Company's computer programs that have time-sensitive software may recognize a date using "00" as the year 1900 rather than the year 2000. This could cause a system failure or miscalculations causing potential disruptions of operations, including, among other things, a temporary inability to process transactions, send invoices or engage in similar normal business activities. The Company has completed an assessment and has determined that it will be required to modify or replace portions of its software so that its computer systems will function properly with respect to dates in the year 2000 and thereafter. The Year 2000 project cost is not anticipated to have a material effect on the results of operations. The project is estimated to be completed not later than December 31, 1998 and the Company believes that with modifications to existing software and conversions to new software, the Year 2000 Issue will not pose significant operational problems for its computer systems. However, if such modifications and conversions are not made or are not completed timely, the Year 2000 Issue could have an impact on the operations of the Company. The costs of the project and the date on which the Company believes it will complete the Year 2000 modifications are based on management's best estimates, which were derived utilizing numerous assumptions of future events, including the continued availability of certain resources and other factors. However, there can be no guarantee that these estimates will be achieved and actual results could differ materially from those anticipated. Specific factors that might cause such material differences include, but are not limited to, the availability and cost of personnel trained in this area, the ability to locate and correct all relevant computer codes and similar uncertainties. 48 BUSINESS The Company is an integrated global children's and family entertainment company which develops, acquires, produces, broadcasts and distributes quality television programming. The Company's principal operations comprise (i) Saban, whose library of over 5,400 half-hours of completed and in-production children's programming is among the largest in the world, (ii) IFE, which operates The Family Channel, a leading basic cable television network that provides family-oriented entertainment programming in the United States, reaching approximately 95% of all cable and satellite television households, (iii) the Fox Kids Network--the top-rated children's- (ages 2-11) oriented broadcast television network in the United States and (iv) a growing portfolio of Fox Kids branded cable and DTH satellite channels operating in approximately 25 countries worldwide. By combining one of the world's largest children's programming libraries with a widely distributed cable platform, a top-rated broadcast network and the Fox Kids branded international channels, the Company has the ability to manage children's properties and brands from their creation through production, distribution and the merchandising of related consumer products. The Company is the result of the joint venture launched in 1995 by Fox Broadcasting and Saban to match the complementary programming and broadcasting strengths of the Fox Kids Network and the international reach of Fox Broadcasting's parent company, News Corp., with the development, production, distribution and merchandising strengths of Saban. In September 1997, the Company finalized the acquisition of IFE, whose principal business is The Family Channel. The IFE Acquisition provides the Company with several strategic advantages, including (i) a widely distributed cable platform, which reaches approximately 71 million homes, providing an effective means for more vigorous competition with other children's- and family-oriented cable services, (ii) an additional outlet for the Company's existing children's programming library, (iii) increased awareness in the Company's primary target market (children ages 2-11) through expanded hours, increased brand exposure and additional licensing and merchandising opportunities and (iv) cross- promotional opportunities with the Fox Kids Network. The Company creates, produces and acquires quality animated and live-action children's television programming with brand-name characters and elements which are either widely known to children, such as the Power Rangers, Casper, Spider-Man, X-Men, Goosebumps and Bobby's World, or which are or have been developed or purchased due to their likelihood of maturing into popular brands. The Company produced, financed or co-financed 14 shows for each of the 1996-1997 and the 1997-1998 broadcast seasons, including Power Rangers, which since shortly after its launch in 1993 has been the highest rated children's weekday strip television program broadcast in the United States among boys ages 2-11. The Company generally retains worldwide rights to its brands, and currently has over 500 licensees worldwide, including toy companies Bandai, Mattel, Hasbro and Toy Biz. One of the most attractive attributes of the Company's children's programming is its "portability," in that it generally can be modified at modest cost and resold for exhibition in other countries through editing and dubbing into other languages. The Company currently distributes its programming over terrestrial broadcast services in most major television markets throughout the world. While maintaining the family image and general entertainment format of the channel, the Company intends to reprogram The Family Channel with a new schedule, look, marketing campaign and logos in August 1998 as the Fox Family Channel. From 6 a.m. to 6 p.m., the Fox Family Channel will carry a total of 76.5 hours of weekly programming targeted principally to children. From 6 p.m. to 11 p.m., the Fox Family Channel will broadcast programming that appeals to the entire family and will carry advertising to be sold on adult demographics. Programming will be selected from the Company's existing library, new original productions produced or co-produced by the Company and original and library product licensed from independent suppliers. The Company also owns and operates the Fox Kids Network, the leading U.S. children's broadcast television network, which broadcasts 19 hours of children's programming each week to 97% of U.S. television households, the broadest reach of any network targeting children. The Fox Kids Network was formed by Fox Broadcasting and most of Fox Broadcasting's affiliates to provide children's programming weekdays and Saturday mornings. The Fox Kids Network has had the highest broadcast television viewership among children in its time period during 20 consecutive quarterly "sweeps" periods through November 1997. According to 49 Nielsen, during the 1996-1997 broadcast season, approximately 19 million children--50% of all children (ages 2-11) in the United States--watched the Fox Kids Network at least once each month. The Fox Kids Network affords advertisers the opportunity to reach children in a cost-effective manner, in part by ensuring consistent nationwide placement of their advertisements by generally broadcasting its programming at the same local time and on the same day ("day-and-date") in each television market. The Fox Kids Network's advertising customers include virtually every major advertiser to children. To capitalize on the Company's extensive library of children's programming, the Company has launched Fox Kids branded DTH satellite and cable channels in approximately 25 countries throughout Europe and Latin America since 1996. The Company also intends to leverage its relationship with News Corp., which has significant equity interests in cable and satellite services in most major international markets, to further its international presence. For example, since October 1996, the Company has operated a Fox Kids branded channel as part of British Sky Broadcasting Group Plc's ("BSkyB") Sky Multi-Channels package, which through DTH currently reaches 3.5 million viewers in the United Kingdom and the Republic of Ireland. ACQUISITION OF INTERNATIONAL FAMILY ENTERTAINMENT, INC. On August 1, 1997, the Company acquired a 50.7% interest in IFE through the purchase for $35 per share of the stock owned by M.G. "Pat" Robertson, Tim Robertson and certain trusts of which they are trustees, The Christian Broadcasting Network, Inc. ("CBN") and Regent University (together, the "Privately Owned Shares") and the exchange by Liberty IFE of all of the IFE stock owned by it and $23 million principal amount of 6% Convertible Secured Notes due 2004 of IFE (the "Convertible Notes") (which have since been retired) for shares of Series A Preferred Stock of the Company. On September 4, 1997, the Company consummated a merger to acquire the remaining shares of IFE from the public shareholders. Total consideration for the IFE Acquisition was approximately $1.9 billion. The Company paid approximately $545 million for the Privately Owned Shares and issued $345 million worth of its Series A Preferred Stock to Liberty IFE as payment for the IFE stock and the Convertible Notes. The balance of the consideration was paid to acquire the publicly traded shares through the merger, to cash out existing options held by IFE senior executives and employees, and to assume IFE's existing bank debt, which has since been retired. The Company financed the IFE Acquisition, in part, by borrowing $1.25 billion pursuant to the Old Credit Facility. On August 1, 1997, the Company borrowed $602 million under the Old Credit Facility to finance the purchase price of the Privately Owned Shares (and to refinance certain indebtedness of Saban outstanding on the closing date of the acquisition of the Privately Owned Shares). On September 4, 1997, the Company borrowed $648 million under the Old Credit Facility in order to finance in part the cash consideration payable to the remaining former public holders of the outstanding shares of IFE stock for their shares in the merger, to cash out existing options held by IFE senior executives and employees, to refinance certain indebtedness of IFE and to pay certain related fees and expenses. See "Description of Other Indebtedness." IFE historically operated in three business segments: the operation of advertiser-supported cable networks, the production ("Production") and distribution of entertainment programming and the production of live entertainment shows ("Live Entertainment"). The Company contemplates that it will continue to operate The Family Channel as the Fox Family Channel but will sell all of IFE's interests in its other cable and international networks not directly related to The Family Channel. In addition, the Company intends to dispose or otherwise discontinue IFE's Production and Live Entertainment businesses. INDUSTRY OVERVIEW Broadcast and Cable Television The U.S. television market is served principally by network-affiliated stations, independent stations and cable or satellite television operators. Because network affiliates generally broadcast network programming nationwide at the same local time and on the same day, the formation of a children's network, such as the Fox Kids Network, has allowed advertisers to efficiently plan and execute their national advertising campaigns. In order to reach the children's market, companies devote significant dollars to advertising. From 1993 to 1996 50 alone, advertising in kid-specific media grew more than 50% to $1.5 billion. Spending by these advertisers is concentrated on television commercials, and over 80% of children report learning about new products through watching television. The growth in the number of international television outlets has created additional global demand for children's programming. The increasing privatization of the international television industry has encouraged a ratings/revenue-oriented focus among international broadcasters, thereby increasing the demand for high-quality television entertainment. Children's programs produced in the United States have enjoyed wide acceptance internationally. In addition, the number of cable and satellite programming services addressing the international community has grown significantly in recent years. These added programming services have created an opportunity for distributors, including the Company, to generate significant revenue from international markets. International television, cable, satellite and home video sales of a children's program produced in the United States can account for half or more of the revenue for a given program. Suppliers and Distributors Suppliers of children's television programming include the production divisions and affiliated companies of the major motion picture studios, independent production companies, syndicators, broadcast television networks, station owners and advertising agencies. These suppliers sell programming to broadcast networks or television stations for a fixed cash fee per episode, by barter or a combination of cash and barter. Distributors of children's television programming in the United States consist primarily of networks (both broadcast television networks and basic cable programming services) and independent television stations. Distributors of children's programming generally sell television series to networks on a cash basis and sell to independent television stations on a barter basis. Networks typically pay a distributor a fixed cash license fee which entitles the networks to a number of runs of a series over a defined period of time. Networks are generally entitled to retain 100% of the advertising revenues generated by the broadcast of a series and sell advertising spots to national advertisers on the basis of guaranteed ratings. Licensing and Merchandising Children's programming provides broad licensing and merchandising opportunities. Characters developed in a popular series, and often the series themselves, may achieve a high level of recognition and popularity among children, making them valuable assets for the licensing and merchandising market, where they provide attractive "branding" opportunities. The children's market is one of the fastest growing segments in licensed merchandising sales. It is estimated that children 14 and under will directly spend approximately $20 billion in 1997, and they will influence another $200 billion in spending. Of the nearly $110 billion in all licensed products sold in 1996 worldwide, $72 billion were licensed in the United States and Canada, the majority of which were children's products. Of the $20.7 billion spent in 1996 on toys in the United States, $7.8 billion was for licensed toys, and $10 billion was for licensed and movie tie-in toys combined. Among the most popular licensed items are toys, apparel, dinnerware/lunch boxes, watches, bedding and soft vinyl goods such as boots, backpacks and raincoats. BUSINESS STRATEGIES The Company intends to continue to increase its presence in the children's and family television entertainment business, with the goal of becoming the leading worldwide producer, broadcaster and distributor of children's and family television programming. The Company intends to focus on the following strategies to achieve its objective: Capitalize on U.S. Cable Platform. While maintaining the family image and general entertainment format of the channel, the Company plans to reprogram The Family Channel as the Fox Family Channel in August 1998 with a new schedule, image and promotional campaign intended to enhance ratings among the approximately 71 51 million subscribers of The Family Channel. The Fox Family Channel will feature children's programming seven days per week during the daytime hours and family-oriented programming during prime time. The Company also has plans to add original series to The Family Channel's prime time schedule and to double the number of original prime time movies premiering annually on the Fox Family Channel from the current level of approximately 12 to 24 or more original features. The Company believes that the availability of original and exclusive features will enhance ratings, improve demographics and build audience loyalty to the Fox Family Channel. Continue to Strengthen U.S. Broadcasting Operations. The Company strives to maintain and improve the ratings, reach and penetration of its U.S. broadcasting network, the Fox Kids Network. The Fox Kids Network is the top- rated children's-oriented broadcast television network, currently reaching approximately 97% of the television households in the United States. The Company plans to further improve its ratings for the Fox Kids Network by continuing to develop, acquire or license quality programming which is attractive to children. The Company, which has created such "hit" programs as the Power Rangers and Bobby's World, currently owns most of the underlying rights to seven of the 14 different programs broadcast on the Fox Kids Network and will strive to increase the number of its owned programs broadcast. Develop Strong Branded Characters and Properties. The Company intends to continue to create and develop new entertainment properties with potential franchise value and to build on its existing and widely recognized institutional and programming brands in order to increase viewership on its networks and maximize revenue from the licensing and merchandising of its branded characters and properties. Some of the Company's programming, such as the Power Rangers, have already achieved franchise status, and their high consumer awareness should provide opportunities to generate revenues from multiple sources on a long-term basis. The Company intends to capitalize on the relationships it has built with major retailers, toy companies and more than 500 licensees worldwide to exploit the merchandising and other ancillary revenue potential of its entertainment properties. Continue to Develop and Produce Cost-Effective Programming. The Company intends to continue its practice of obtaining contractual upfront commitments from networks, independent television stations, international broadcasters and merchandisers prior to commencing production. The Company also intends to continue to produce programming in a cost-effective manner while maintaining control over critical parts of the production process to ensure continued high quality. Launch Additional International Channels. The Company believes that significant expansion opportunities exist in the international television markets, where the children's market has been relatively underserved. With its library of over 5,400 half-hour episodes of completed and in-production children's programming, many of which meet the local content requirement of various European countries, the Company intends to focus significant resources on the expansion of its international operations. The Company has an important strategic advantage through its relationship with News Corp., whose equity interests in international television distribution platforms and reputation throughout the world have been helpful in securing carriage agreements on those platforms. The Company intends to expand the Fox Kids Network globally by launching Fox Kids branded cable and DTH satellite channels targeting children in many major international territories. The Company's objective is to create synergies across the base of these channels and thereby reduce programming costs while marketing and localizing the channels to distinguish Fox Kids from its competitors. PROGRAMMING The Company creates, produces and acquires quality animated and live-action children's television programming. The Company's library of approximately 5,400 half-hour episodes of completed and in-production children's television programming is one of the largest children's libraries in the world. The principal programming objective of the Company is to develop or acquire appealing characters and concepts that can be commercially exploited throughout the world through broadcast network and cable television exhibition, home video sales, licensing and merchandising. One of the most attractive attributes of quality children's programming 52 is its "portability." Children's programming produced for exhibition in a particular country is considered "portable" because it can generally be modified through editing and dubbing into other languages at a modest cost and resold for exhibition in other countries. Programming Library The two principal sources of the Company's programming library are (i) television series that have been originally produced by the Company for broadcast in the United States and internationally (approximately 2,094 half- hours) and (ii) programming produced by others for which the Company has acquired various distribution rights (approximately 3,334 half-hours), of which approximately 38% have been updated or "freshened" with new scripts, voices and music prior to distribution. Of the Company's library, including episodes in production as of September 30, 1997, 1,458 half-hours are original co-produced programming that meet applicable European content requirements and are intended for initial broadcast in Europe. Approximately 81% of the completed and in-production programming library is animated programming, and the balance is live-action. The Company believes that its distribution rights are broad enough as to territory to permit it to meet broadcasters' requirements in markets throughout the world. Of the episodes in the Company's library of children's programming, approximately 86% are parts of series consisting of 26 or more episodes, facilitating their distribution as complete series in the United States and international markets. The Company's international programming includes worldwide distribution rights to a 445 half-hour episode library of family oriented programming acquired in the April 1996 acquisition of Paris-based C&D, a leading European producer of family entertainment, and a 712 half-hour episode library of animated children's programming acquired in the April 1996 acquisition of Vesical Limited, a library of international rights to programming originally produced by DIC. The Vesical library includes non-U.S. rights to classic series such as Inspector Gadget, Heathcliff and Dennis the Menace. In January 1997, the Company obtained from FOX Television, a division of Fox, Inc. ("FOX Television") the distribution rights to the New World Communication Group Incorporated's ("New World") animation library of 515 half-hour episodes. The rights are terminable by FOX Television upon 30 days written notice to the Company. See "Certain Transactions." Creation and Development of Programming The Company has and will continue to pursue ideas and properties for original production from a number of sources. For example, the Company may acquire production, distribution and possibly other rights to an existing property (such as Marvel's X-Men and Francine Pascal's Sweet Valley High) or series (such as DragonBall Z and Saban's Adventures of Little Mermaid), develop internally a new property based on an existing public domain property (such as Saban's Adventures of Oliver Twist) or create or acquire an entirely new idea or character (such as Eek!Stravaganza). The Company also maintains a state of the art post-production facility in Los Angeles, California. The Company records all of the music for its programming and edits and adds audio and sound effects to its programming. The Company also produces most of the on-air promotions, sales films and public service announcements for its Fox Kids Network. The Company owns a full-service animation studio in Paris which develops programming containing content that meets the local content requirements of various European countries for local broadcast television. The Paris studio has produced approximately 237 half-hours of programming since its inception in 1990 through September 30, 1997, and has an additional 228 half-hours for broadcast in 1998 and beyond. In general, the Company enters into strategic co-production alliances to develop its French and European content programming. Among the Company's European co-production partners are Canal Plus, France 2, M6 and Television Francaise 1 in France, Radio Television Luxembourg 4 in Holland, Compagnie Luxembourgois de Telediffusion in Luxemburg, British Broadcasting Company in the United Kingdom, Television Suisse Romande in Switzerland, Radio-Television Belge de la Communaute in Belgium, Radiotelevisione Italiana in Italy, Tele 5 in Spain and Arbeitsgemeinschaft der Oeffentlichen Rechtlichen Rundfunkanstalten Deutschlands ("ARD") in Germany. 53 Following are examples of the programs currently being broadcast in the United States for the 1997-1998 broadcast season for which the Company owns or controls most of the underlying property and distribution rights, and the program schedule commencing in February 1998.
EPISODES IN PRODUCTION FOR 1997-98 PROGRAM SERIES SEASON SCHEDULE YEARS ON AIR PROGRAM DESCRIPTION ------ -------------- -------- ------------ ------------------- FOX KIDS NETWORK: BeetleBorgs Metallix+ 35 Monday-Thursday 2 Three kids become comic book superheroes in this comedy adventure series. Bobby's World* 10 Monday-Thursday 8 Combines point of view of a 4- year old with spirit of Howie Mandel. Power Rangers Turbo+ and 91 Monday-Thursday 5 The next generations of the Power Rangers in Space+ Saturday Power Rangers adventure. Life With Louie* 13 Monday-Thursday 3 Comedian Louie Anderson's childhood ups 'n downs of dodging bullies, eating pies and going on family vacations. Ninja Turtles: The Next 26 Friday P.M. premiere Based on the Teenage Mutuant Mutation+ Ninja Turtles series, the world's favorite party reptiles use slapstick humor and high- tech hardware to reach a new generation of fans. Silver Surfer* 13 Saturday A.M. premiere Marvel comic book action adventure. Space Goofs*(1) 26 Saturday A.M. premiere Adventures of alien monsters who crash-land on earth and hide out in a house for rent until they get back home. OTHER DISTRIBUTION OUTLETS: Saban's Adventures of 13 Weekend A.M. 2 Inspired by Charles Dickens' Oliver Twist* timeless classic. DragonBall Z*(2) 26 Weekend A.M. 2 A mystical adventure series of riveting stories, driven by extraordinary characters who embody the essence of good and evil. X-Men . . . And Marvel 52 Weekday 5 One hour of Marvel comic book Superheroes* heroes including X-Men, Ironman and Fantastic Four. The All New Captain 26 Weekend A.M. premiere The classic children's program, Kangaroo+ updated for a new generation. Sweet Valley High+(3) 22 Sunday 4 Twins living the California dream. Breaker High+ 44 Sunday premiere The adventures of high school on a cruise ship. Incredible Hulk*(4) 8 Sunday 2 Based on the Marvel comic book superhero.
- -------- + Live-action. * Animation. (1) The Company has U.S. television and U.S. and Canadian home video and merchandising rights through 2002. Gaumont Multimedia owns the copyrights and trademarks. (2) The Company has exclusive U.S. distribution rights on a year-to-year basis through 2001, although FUNimation and Toei Animation own the copyrights and trademarks. (3) Pursuant to an agreement dated November 27, 1996, UPN has agreed to purchase from the Company the exclusive rights to Francine Pascal's Sweet Valley High, committing to a 22-episode order for the 1997-1998 broadcast season and acquiring all 66 previously aired episodes. (4) Produced by New World Animation; the Company has worldwide distribution rights, excluding merchandising. 54 International Sales of Programming Much of the Company's programming is distributed on a worldwide basis. The Company believes that by owning and controlling the international distribution rights to its programming, in addition to generating significant revenue from the sale of its programming, it can also establish an international presence for the Company and its properties. The Company is currently party to distribution arrangements with international television broadcasters and distributors to exhibit and distribute the Company's programming to over 375 terrestrial, cable and satellite distribution platforms in approximately 100 countries. These distribution arrangements accounted for approximately $81 million, or 26% of the Company's consolidated revenues for the fiscal year ended June 30, 1997 and approximately $34 million, or 28% of the Company's consolidated revenues for the three months ended September 30, 1997, and, giving effect to the IFE Acquisition as if it had occurred on July 1, 1996, 15% and 24% of its pro forma consolidated revenues for the respective periods. In January 1996, the Company entered into a distribution agreement with ARD, the largest broadcaster in Germany, pursuant to which the Company agreed to grant rights to at least 24 two-hour movies for television ("telefilms"), six co-produced animated children's program series (consisting of Jim Knopf, Wunschpunsch, Walter Melon, The Why Why Family, Princess Sissi and Saban's Adventures of Oliver Twist), any coproduced series based on German author Michel Ende's stories for which the Company controls the rights and 390 half- hour episodes of other children's animated programs. The territory is limited to German-speaking Europe. ARD's rights include the right to transmit (with unlimited runs), broadcast, exhibit, dub and sublease within its territory each telefilm and series, and to receive a profit participation, as defined in the agreement, based upon net revenues, from the distribution of certain properties covered by the agreement. The terms are ten years for the telefilms, thirteen years for the six co-produced series and seven years for the other half hour episodes. The Company is currently negotiating an extension of its distribution agreement with ARD. DISTRIBUTION The Company distributes its own programming, as well as the programming of others, throughout the United States and in major markets throughout the world. The Company is uniquely positioned as a distributor as a result of its strategic relationship with Fox Broadcasting and News Corp. and by reason of its large programming library. See "--The Strategic Alliance with Fox/News Corp." and "--Programming." The Company owns three distribution outlets: The Family Channel/Fox Family Channel, the Fox Kids Network and Fox Kids branded international channels. The Family Channel/Fox Family Channel The Family Channel is a basic cable network that provides family-oriented entertainment and informational programming to approximately 95% of all U.S. cable and satellite television households. The Company intends to reprogram The Family Channel in August 1998 as the Fox Family Channel with a new schedule, look, marketing campaign and logo. The new format will include day- time programming for children followed by evening programming which will be suitable for the entire family. Evening programming is intended to include original series, specials and movies produced and licensed to the Fox Family Channel, as well as programs originally televised on the major broadcast networks. Currently, The Family Channel's programs are transmitted 24 hours a day via satellite from the Company's uplink facility in Virginia Beach. In general, pursuant to The Family Channel's affiliation agreements, each cable system operator or other delivery service distributing The Family Channel agrees to pay the Company a monthly fee per subscriber. The Family Channel affiliation agreements are generally three, five or ten years in duration and provide for annual per subscriber rate increases. Increases in per subscriber fees and, to a lesser extent, increased household penetration have generated growth in The Family Channel subscriber fee revenue. In addition, The Family Channel earns revenue through the sale of advertising spots. Ratings and Programming. The Company plans to air 76.5 hours of children's programming from 6 a.m.-6 p.m. each week, and programming suitable for the entire family from 6 p.m.-11 p.m. Throughout the course of 55 the day, the Company intends to gradually target programming to more mature audiences. Under an agreement with CBN, the Company will continue to air The 700 Club with Pat Robertson, an inspirational news and talk show, during three time slots Monday-Friday, currently 10:00 a.m-11:30 a.m., 11 p.m.-midnight, and 2 a.m.-3 a.m. As of September 1997, The Family Channel billed cable systems for approximately 65 million subscribers, as compared to Nielsen's estimate that the network is available in 71 million households. The discrepancy may be explained in part by sampling error, but more significantly by subscriber theft, a common occurrence in the cable industry. According to Nielsen, The Family Channel's prime time ratings averaged 1.11, or 759,000 of the 71 million households, for the nine months ended September 1997. For purposes of reporting ratings, The Family Channel defines prime time as 7 p.m.-10 p.m. Monday-Friday, 8:00 p.m.-midnight Saturday and 7:00 p.m.-11:00 p.m. Sunday. Transmission Facilities. The Company transmits all programming for The Family Channel from its facilities located in Virginia Beach, Virginia, by means of an earth station transmitting antenna (an "uplink"). The uplink facility transmits the programming signal to a transponder on an orbiting satellite, which in turn retransmits the signal to cable systems operators, DBS services and other alternative delivery services. Programming is transmitted using two separate "feeds" (one for the eastern, central and certain mountain time zones and another for all other mountain time zones and the pacific time zones) which are transmitted to two different satellite transponders. The Company owns the transponders for these two feeds as well as a transponder on a third satellite. All of the Company's owned transponders have "protected" status. "Protected" status means that should the transponder fail, service will be transferred, subject to availability, to a spare transponder and, if one is not available, then to a transponder with "preemptable" status on the same satellite or on another satellite owned by the same seller or lessor, subject to certain limitations. "Preemptable" status means that the transponder can be preempted in the event of a failure of a "protected" transponder. See "Risk Factors--Dependence Upon Satellite Transponders." Fox Kids Network The Fox Kids Network, launched in September 1990, is the result of an arrangement between Fox Broadcasting and participating FOX Television Member Stations to form a broadcast television network focused on children (ages 2- 11). The Fox Kids Network was the first television network to broadcast children's programs during the week (Monday through Friday) as well as on Saturday. The guiding philosophy of the Fox Kids Network is to provide a diverse slate of quality entertainment targeted toward children. Of its 19 hours of children's programming per week, the Fox Kids Network broadcasts four hours on Saturday mornings, one hour each weekday morning and two hours each weekday afternoon. At least three hours of programming each week are dedicated to educational programming for children. See "--Government Regulation." Now in its eighth broadcast season, the Fox Kids Network currently is carried by 179 Fox Kids Network Affiliates, 164 of which are affiliated with the FOX Television Member Stations and 12 of which are currently Fox O&O's. The Fox Kids Network Affiliates reach approximately 97% of all U.S. television households. The Fox Kids Network produces and acquires programs, markets and promotes these programs, makes its schedule available to its Fox Kids Network Affiliates and sells network advertising. The Company cross-promotes the Fox Kids Network through its Fox Kids Club, Totally Fox Kids quarterly magazine, Fox Kids Countdown radio show and Fox Kids website. Under an Administration Agreement between Fox Broadcasting and FCN, Fox Broadcasting agreed to administer certain of FCN's activities, including network national advertising sales and the administration thereof, commercial trafficking and broadcast operations (including the delivery of programming to the Fox Kids Network Affiliates) and overhead charges related to Fox Broadcasting's in-house administrative support in the areas of research, promotion, business affairs, legal affairs and accounting. In exchange for these services, FCN agreed to pay Fox Broadcasting an administrative fee, currently equal to 15% of the net advertising revenues derived from Fox Kids Network national commercials and other advertising. Effective June 1, 1995, Fox Broadcasting assigned all of its rights under this agreement to the Company, and has agreed to continue to 56 provide the Company, for a one-time fee (which has been paid), all uplink, transponder and other facilities necessary to deliver via satellite Fox Kids Network programming for broadcast to the Fox Kids Network Affiliates, as well as certain other services. The Fox Kids Network schedule commencing in February 1998 is set forth below. The Company believes that the programming designated below as "educational" complies with the FCC's requirement that broadcast television stations show at least three hours of "educational" programming per week. SATURDAY MORNING PROGRAMMING
TIME PERIOD CONSECUTIVE YEARS (EST) PROGRAM ON AIR PROGRAM DESCRIPTION - ----------- ------- ----------------- ------------------- 8:00-8:30 a.m. Mowgli: The New Adventures of the Jungle Book premiere Live action series inspired by the Rudyard Kipling book "The Jungle Book." 8:30-9:00 a.m. Ned's Newt premiere Animated comedy adventure series of a young boy with his 7-foot tall pet salamander. 9:00-9:30 a.m. Goosebumps 3 Based on the best-selling suspense novels by R.L. Stine. 9:30-10:00 a.m. Toonsylvania premiere Animated adventures of Dr. Frankenstein's long-suffering assistant, Igor. 10:00-10:30 a.m. Ultimate Goosebumps 3 Based on the best-selling suspense novels by R.L. Stine. 10:30-11:00 a.m. Space Goofs premiere Adventures of alien monsters who crash-land on earth and hide out in a house for rent until they get back home. 11:00-11:30 a.m. Eerie, Indiana: The Other Dimension premiere Spin-off series from the original, following the adventures of 2 kids investigating strange going ons in their home town. 11:30-Noon Silver Surfer premiere Based on the Marvel comic book action adventures. MONDAY-THURSDAY PROGRAMMING TIME PERIOD CONSECUTIVE YEARS (EST) PROGRAM ON AIR PROGRAM DESCRIPTION - ----------- ------- ----------------- ------------------- 7:00-7:30 a.m. Bobby's World (educational) 8 Combines point-of-view of a 4- year-old with the spirit of comedian Howie Mandel. and 7:30-8:00 a.m. 3:00-3:30 p.m. BeetleBorgs Metallix 2 The next generation of the Big Bad BeetleBorgs. 3:30-4:00 p.m. Spider-Man 4 Based on the most popular Marvel comic book hero in history. 4:00-4:30 p.m. Power Rangers Turbo 5(1) The next generation of the Power Rangers saga. 4:30-5:00 p.m. Life With Louie (educational) 3 Comedian Louie Anderson's childhood ups 'n downs of dodging bullies, eating pies and going on family vacations.
57 FRIDAY PROGRAMMING
TIME PERIOD CONSECUTIVE YEARS (EST) PROGRAM ON AIR PROGRAM DESCRIPTION - ----------- ------- ----------------- ------------------- 7:00-7:30 a.m. C-Bear & Jamal (educational) 2 Life of Jamal Wingo, a 10-year old African American boy whose thrift store teddy bear comes to life. 7:30-8:00 a.m. Casper 2 The friendly ghost. and 3:00-3:30 p.m. 3:30-4:00 p.m. Sam & Max premiere In the frenetic world of tough as nails cops, none is more dysfunctional than the duo of Sam, the dog, and Max, the wild, psycho rabbit. 4:00-4:30 p.m. Power Rangers In Space premiere(1) The newest generation of the Power Rangers Saga. 4:30-5:00 p.m. Ninja Turtles: The Next Mutation premiere Based on the Teenage Mutant Ninja Turtles series, the world's favorite party reptiles use slapstick humor and high- tech hardware to reach a new generation of fans.
- -------- (1) Power Rangers, as a franchise, has been on the air for five consecutive years. Power Rangers Turbo has been on the air for approximately two years and Power Rangers In Space premiered this season. Ratings. The Fox Kids Network is measured by Nielsen in terms of ratings and share points. For the 1997-1998 broadcast season, the potential viewing universe of children in the United States is estimated to be 39 million. Each ratings point represents 1.0% of these children who are watching television during a particular time slot. For the 1996-1997 broadcast season, the Fox Kids Network averaged a 2.4 rating and 16% share, Monday-Friday, and a 4.4 rating and 21% share Saturday mornings during the hours it broadcasts. The Fox Kids Network's ratings for Saturday morning were almost twice that of its closest broadcast competitor, ABC (2.6 rating and 12% share). For the 1997- 1998 broadcast season to date, the Fox Kids Network averaged a 2.2 rating Monday-Friday and a 3.7 rating on Saturday mornings during the hours it broadcasts. Fox Kids Affiliation Agreements. Currently, more than 93% of the FOX Television Member Stations, including 12 of the 22 Fox O&O's, carry the Fox Kids Network pursuant to their affiliation agreements with Fox Broadcasting. These affiliation agreements expire over the next one to ten years and there can be no assurance that they will be renewed. The affiliation agreements provide that FCN is to pay to each of the Fox Kids Network Affiliates (including the Fox O&O's) participations based upon the "net profits" (as defined) of FCN, with the participations allocated among the Fox Kids Network Affiliates based upon each Affiliate's percentage of cumulative audience delivery as compared to the other Fox Kids Network Affiliates. "Net profits" is defined on a cumulative basis to include amounts actually received by FCN from the exhibition, distribution and other exploitation of Fox Kids programs and the merchandising and other rights relating thereto, less administrative fees, production/license fees, distribution and merchandising fees (including those payable to the Company), overhead and other expenses and reserves. Certain of the Fox O&O's have waived in favor of the Company their rights to receive these participations, which instead are retained by the Company. As a result of this waiver, through December 31, 1997, $4.7 million, or approximately 30% of the total amounts paid ($15.9 million) to all Fox Kids Network Affiliates, has been retained by the Company. The non-Fox O&O Fox Kids Network Affiliates have appointed a board of their members (the "Affiliate Board") for the purpose of facilitating communications between the non-Fox O&O Affiliates and FCN. On behalf of the Company, Fox Broadcasting from time to time meets with the Affiliate Board to review the operations and operating policies of FCN and the Fox Kids Network. The Company is involved in ongoing discussions with the Fox Kids Network Affiliates with respect to the possibility of purchasing their interest in the "net profits" of FCN. There can be no assurance that such a proposal will be acceptable to the Fox Kids Network Affiliates. 58 International Channels The Company believes that it is positioned strategically, particularly through its relationship with News Corp., to take advantage of growth in international DTH satellite and cable television services and the resulting increase in demand for television programming. The Company has launched branded Fox Kids channels, owned and operated by the Company, which are distributed via DTH satellite and cable in the United Kingdom, the Republic of Ireland, Latin America, France, Holland and Australia. The Company also has signed agreements to launch Fox Kids branded channels in Scandinavia in early April 1998 and Poland in mid-April 1998, and is in active discussions and negotiations to launch additional Fox Kids branded channels in other countries throughout the world, with particular emphasis in Germany, Spain, Italy, Austria, Belgium, Switzerland and Turkey. The Company's objective is to become the leading operator of international children's channels by creating fully localized Fox Kids branded channels in every major territory. United Kingdom and Republic of Ireland. The Company operates a Fox Kids channel that is distributed to over 3.7 million subscribers in the United Kingdom and the Republic of Ireland. The channel is distributed as part of BSkyB's Sky Multi-Channels DTH package to over 3.5 million subscribers, and over a number of cable systems to approximately 250,000 viewers. The Company expects to grow significantly its subscriber base by increased distribution through BSkyB, in which News Corp. owns a 40% interest, and through increased cable distribution. Latin America. Since November 1996, the Company has operated Fox Kids Latin America ("FKLA"), a pan-regional Latin American channel, which simultaneously broadcasts animated and live-action programming in Spanish, Portuguese and English. The 24-hour service is transmitted via the PanAm Sat 5 satellite and currently reaches 3.9 million cable and multi-channel multi-point distribution system ("MMDS") homes in 19 countries throughout the region. In addition, the Fox Kids channel is carried on two emerging Sky-branded DTH platforms currently operating in Mexico and Brazil, which reach an additional 160,000 homes. In October 1997, the Company launched FKLA on Brazil's largest multi-system operator, NET (a subsidiary of Globo, Brazil's largest media company with a potential reach of approximately 1.7 million subscribers). The Company also has recently launched on Brazil's second largest multi-system operator, TV Abril, making FKLA available up to an additional 450,000 homes in Brazil. The Company is aggressively positioning FKLA in the Brazilian marketplace in anticipation of 1,500 new cable licenses to be auctioned by the government, which should expand Brazil's multi-channel universe to more than 6 million subscribers by the year 2000. Holland. The Company acquired 100% of TV10 from Arcade Media Group B.V. and Wegener N.V. (90% in March 1997 and 10% in December 1997). TV10 is distributed in Holland via cable to 89% of all television households. Before the Company's purchase of its interest in TV10, the channel had an average 1.8% market share. On August 2, 1997, a Fox Kids service was launched on TV10, broadcasting between the hours of 6:30 a.m. and 6:00 p.m. on weekdays and 5:00 p.m. on Saturday and Sunday. The Fox Kids block currently has a weekly average of 10% market share for children 6-11, and a 12% market share for children Monday through Friday. France. A new Fox Kids channel was launched in France in November 1997. The channel is distributed as part of the basic package of the Canal Satellite DTH platform to approximately 700,000 subscribers. The channel currently is broadcasting 15 hours per day, seven days per week. The Company is in discussions with all major cable operators to broaden distribution, although there currently is limited channel capacity on most of the analog cable systems in France. Australia. Foxtel, an Australian-based cable service, has carried a Fox Kids Network children's channel segment since 1994 under a license agreement between Foxtel and an affiliate of Fox Broadcasting. This license was assigned to the Company. As of December 31, 1997, Foxtel had over 275,000 subscribers. Foxtel is a 50/50 partnership between News Corp. and the Australian state- owned telephone company, Telstra. 59 Scandinavia. The Company plans to launch a Fox Kids channel in Sweden, Norway, Denmark and Finland on the new digital DTH platform of Canal Digital, a joint venture between Telenor and Canal PLUS in early April 1998. Canal Digital will act as agent in maximizing the distribution of the channel to cable and satellite master antenna television ("SMATV") operators. The channel will be operated from the United Kingdom and will broadcast children's programming 12 hours per day, fully dubbed into Norwegian, Swedish and Danish. Discussions are taking place to obtain analog DTH distribution as well as with all major cable and SMATV operators for distribution of the Fox Kids throughout Scandinavia, including distribution in Iceland. Poland. The Company plans to launch a Fox Kids channel in Poland in mid- April 1998, as part of @Entertainment's cable network (PTK) and new digital DTH platform. @Entertainment is the largest provider of multi-channel television services in Poland. Based on @Entertainment's projections, Fox Kids is expected to reach 750,000 subscribers at launch and 1.2 million subscribers by the end of 1998. @Entertainment will act as agent in maximizing the distribution of the channel to cable operators in Poland. The channel will be operated from the United Kingdom and will broadcast children's programming 12 hours per day, fully dubbed into the Polish language. ADVERTISING The extensive reach of The Family Channel and Fox Kids Network affords advertisers substantial day-and-date capacity to conduct nationwide advertising campaigns. Substantially all of the revenues of the Fox Kids Network are derived from national network advertising and the merchandising of its characters and related series elements. For the year ended June 30, 1997 and the three months ended September 30, 1997, the Company's revenues from advertising were approximately $125 million or 41% and $50 million or 40% of consolidated revenues, respectively, and, giving effect to the IFE Acquisition as if it had occurred on July 1, 1996, $279 million, or 45%, and $61 million, or 41%, respectively, of the Company's pro forma consolidated revenues. One of the Company's objectives in its planned reprogramming of The Family Channel as the Fox Family Channel is to reach viewers that are attractive to advertisers. See "Risk Factors--Acquisition of IFE." The Company also derives revenues from program sales which consist of sales of program length periods of time for infomercials which currently air during certain portions of the 12 a.m. to 6 a.m. time block on The Family Channel. MERCHANDISING AND LICENSING The Company capitalizes on its popular characters and properties by entering into licensing agreements with manufacturers and retailers of children's products. Under these agreements, the Company seeks to earn revenue from the sale of products while limiting the costs and risks associated with manufacturing, distributing and marketing merchandise. For the year ended June 30, 1997 and the three months ended September 30, 1997, the Company's licensing and merchandising activities represented approximately 18% and 3% of the Company's consolidated revenues, respectively, and giving effect to the IFE Acquisition as if it had occurred on July 1, 1996, approximately 9% and 2%, respectively, of pro forma consolidated revenues. The revenue derived from licensing and merchandising depends not only on the success, recognition and appeal of a character, but also on the quality and extent of the marketing, product development and retail efforts of the Company and its licensees. Sales of licensed products also help the Company's shows by promoting the Company's characters. The Company has entered into toy license agreements with a number of toy manufacturers pursuant to which the manufacturers are given the exclusive right to create, manufacture and develop toys representing characters from the Company's series. For example, the Company has toy licenses with Bandai, covering Power Rangers and BeetleBorgs, and with Playmates, Inc., covering Captain Kangaroo. These licenses generally grant the exclusive right to manufacture and sell toys based upon the characters and other creative elements in the licensed series. Pursuant to these agreements, the Company generally receives an up-front advance that is non-refundable but is credited against royalties, generally based on a percentage of net sales of the licensed product. The Company also retains approval rights regarding advertising, packaging and the quality of its licensed product, as well as continued ownership of the copyright and trademark. The Company has licensing arrangements in place with over 500 different licensees worldwide for consumer products targeting children, such 60 as toys, apparel, dinnerware/lunch boxes, watches, bedding and soft vinyl goods, such as boots, backpacks and raincoats. Merchandise based on the Company's characters and properties is sold in approximately 60 countries throughout the world. The following table sets forth examples of the licensee and products for some of the more than 500 licensees of the Company: LICENSEE PRODUCTS Bandai Toys including action figures and video games Creative Expressions Group, Party goods Inc. Disguise, Inc. Ready-to-wear Halloween costumes Ero Industries Slumber bags and play tents Fruit of the Loom, Inc. Girl's and boy's underwear S. Goldberg & Company Footwear Good Humor-Breyers Ice Cream Frozen snacks and desserts Harper Collins Picture storybooks and novelty books Hasbro Games and puzzles High Point Knitting Belts, hats and other apparel Playmates, Inc. Toys Norcom Pocket folders and notebooks Roma Kids Luggage and backpacks Tiger Electronics LCD Games USA Laboratories Vitamins
HOME VIDEO AND TELEFILMS Home Video. The Company produces direct-to-video feature films, in addition to granting home video distribution rights to manufacture and distribute video cassettes based upon its television programming. For example, the Company released in September 1997 the direct-to-video film, Casper--A Spirited Beginning, and is in production on a second film based upon the character "Casper." The Company also is in pre-production on a film based on the character "Richie Rich," and has acquired rights to produce new live-action television specials and series programs based upon the "The Addams Family" characters. Through a separate agreement with Fox Video, the Company distributes throughout the United States and Canada all of its television programs produced for children and owned or controlled by Saban or FCN. The Company receives royalties from the sale of home video cassettes of its television programming. See "Certain Transactions--Certain Transactions Between the Company and the Fox Parties." Telefilms. Historically, the Company acquired international distribution rights to several telefilms ranging from 12 to 15 motion pictures per year over the past three years. While the Company occasionally acquired U.S. rights to these films, the primary objective of acquiring telefilms was to complement the Company's international children's programming sales activities. With the acquisition of The Family Channel, the Company has made a decision to increase the number of telefilms produced or acquired each year to 25 or more motion pictures. Further, whenever possible, the Company will acquire worldwide rights to these features. These films are typically targeted at prime time audiences and consist of dramas, thrillers and action/adventure features. The Company intends to air these features on the Fox Family Channel and to distribute these features internationally to television broadcasters and home video distributors. THE STRATEGIC ALLIANCE WITH FOX/NEWS CORP. News Corp., along with its subsidiaries, including Fox Broadcasting, is a diversified international communications company principally engaged in the production and distribution of motion pictures and television programming; television broadcasting; the publication of newspapers, magazines, books and free standing inserts; computer information services; and digital broadcasting systems. As of December 1, 1997, FOX 61 Television had 175 prime time primary television station affiliates and three prime time secondary television station affiliates across the United States, including 22 Fox O&O's, reaching over 96% of U.S. television households. Each television station affiliate is a party with Fox Broadcasting to an affiliation agreement which governs the terms of the relationship between them. See "Risk Factors--Strategic Relationships with News Corp. and Fox." The Fox Kids Network is distributed over the same broadcast facilities as FOX Television. In December 1995, Fox Broadcasting and certain of its affiliates (the "Fox Parties") entered into a long-term strategic alliance with the Company for the mutual support of the Fox Parties and the Company in the children's entertainment business. Set forth below is a summary of certain of the material portions of the relevant strategic alliance provisions contained in the Asset Assignment Agreement (the "Asset Assignment Agreement"), pursuant to which the Fox Parties assigned, effective as of June 1, 1995, certain assets and interests to the Company. See "Certain Transactions--Certain Transactions Between the Company and the Fox Parties." License of "Fox" Name. The Fox Parties granted to the Company the perpetual worldwide exclusive right to use the name "Fox" in conjunction with the words "Kids," "Kid" or "Children," and agreed not to use or license the name "Fox" to others for similar purposes. New Services and other Noncompetition Provisions. The Fox Parties agreed not to operate in the United States any broadcast, cable or non-standard programming service targeted at children ages 2-11 (a "kids' service") other than the Fox Kids Network. If the Fox Parties at any time determine to acquire a new kids' service anywhere else in the world, which kids' service would bear the "Fox" name, they are required to provide the Company with a right of first refusal to acquire and own that new kids' service. Moreover, should the Fox Parties or any of their affiliates at any time acquire a television, cable or satellite network or any other business which includes a kids' programming service, the Fox Parties will be required to offer the Company the right to acquire and own that kids' service. First Right to Fox Parties Originated Programming. The Fox Parties have agreed to provide the Company with the first right to acquire first run exhibition rights to any new programming suitable for a kids' service ("kids' programming") prior to its sale or license to any third party; however, the Fox Parties may freely license kids' programming to any broad based entertainment network (which is not a kids' service) for prime time or late night broadcast and programming derived from properties (such as The Simpsons) not originally launched on the Fox Kids Network. The Company has historically maintained a close working relationship with the Fox Parties, pursuant to which the Company and its operating subsidiaries have been granted access to the Fox Parties' motion picture studio and other ancillary facilities, as well as their distribution and administrative services (see "Certain Transactions"), and, although the Fox Parties are not generally obligated to provide such services in the future, the Company intends to seek access to these services where the Company believes that they may be beneficial to the Company. Should the Fox Parties decide not to provide these services, the Company believes similar services are readily available to the Company at competitive prices. COMPETITION The businesses in which the Company engages are highly competitive. Each of the Company's primary market business operations is subject to competition from companies which, in some instances, have greater production, distribution and capital resources than those of the Company. Programming. The Company competes on the basis of relationships and pricing for access to a limited supply of facilities and talented creative personnel to produce its programs. The Company competes with major motion pictures studios, such as Warner Bros. and The Walt Disney Company, and animation production companies, including Hanna Barbera and Film Roman, for the services of writers, producers, animators, actors and other creative personnel and specialized production facilities. 62 Distribution. In the United States, the Company competes for ratings and related advertising revenues. The Company currently competes and expects to continue to compete, through the Fox Kids Network and the Fox Family Channel, with the other broadcast television networks, public television and cable television channels, such as Nickelodeon, USA Cable Network, Turner Network Television and The Cartoon Network for market acceptance of its programming and for viewership ratings and advertising revenues. To the extent that the Company produces original programming for distribution outlets it does not own, it competes with other producers of children's programming. Internationally, the Company competes with a large number of U.S.-based and international distributors of children's programming, including The Walt Disney Company, Warner Bros. and Nickelodeon, in the development or acquisition of programming expected to appeal to international audiences. Such programming often must comply with foreign broadcast rules and regulations, which may stipulate certain minimum local content requirements. GOVERNMENT REGULATION The following does not purport to be a summary of all present and proposed federal, state and local regulations and legislation relating to the broadcasting and cable television industries and other industries involved in the video marketplace; rather it attempts to identify those requirements that could affect the Company's business. Also, other existing legislation and regulations, copyright licensing, and, in many jurisdictions, state and local franchise requirements, are currently the subject of a variety of judicial proceedings, legislative hearings and administrative and legislative proposals which could affect, in varying degrees, the manner in which the cable television industry and other industries involved in the video marketplace operate. Federal Regulations and Legislation The distribution of the Company's programming by broadcast stations and cable systems must comply with the provisions of the Children's Television Act of 1990 ("CTA") and the rules and policies of the FCC pertaining to the production and distribution of television programs directed to children, particularly with respect to the amount and type of commercial matter broadcast during programs directed at children. Failure to comply with the children's television commercial limitations can result in the imposition of sanctions, including substantial monetary fines, on a broadcast television station or cable system, which could adversely impact the Company. FCC rules also establish a "processing guideline" for broadcast television stations of at least three hours per week, averaged over a six-month period, of "programming that furthers the educational and informational needs of children 16 and under in any respect, including the child's intellectual/cognitive or social/emotional needs." "Core Programming" has been defined as educational and informational programming that, among other things, (i) has serving the educational and informational needs of children "as a significant purpose," (ii) has a specified educational and informational objective and a specified target child audience, (iii) is regularly scheduled, weekly programming, (iv) is at least 30 minutes in length and (v) airs between 7:00 a.m. and 10:00 p.m. Any station that satisfies the processing guideline by broadcasting at least three weekly hours of Core Programming will receive FCC staff-level approval of the portion of its license renewal application pertaining to the CTA. Alternatively, a station may qualify for staff-level approval even if it broadcasts "somewhat less" than three hours per week of Core Programming by demonstrating that it has aired a weekly package of different types of educational and informational programming that is "at least equivalent" to three hours of Core Programming. At the present time, the Company provides three hours per week of Core Programming to affiliates of FCN, thereby enabling them to fulfill their obligations under the CTA. The Company believes that two additional programs, Life With Louie and The All New Captain Kangaroo, also qualify as Core Programming under the new rules. Certain aspects of the Company's cable operations are subject, directly or indirectly, to federal, state, and local regulation. At the federal level, the operations of cable television systems, satellite distribution systems, other multichannel distribution systems, broadcast television stations, and, in some respects, vertically integrated cable programmers are subject to the Communications Act of 1934, as amended, the Cable Communications 63 Policy Act of 1984 (the "1984 Act"), the Cable Television Consumer Protection and Competition Act (the "1992 Act"), and the Telecommunications Act of 1996 (the "1996 Act") and regulations promulgated thereunder by the Federal Communications Commission (the "FCC"). Cable television systems are also subject to regulation at the state and local level. See "--State and Local Regulation." The 1996 Act took effect in February 1996, altering the network of federal, state, and local laws and regulations pertaining to telecommunications providers and services. The FCC is in the process of promulgating rules interpreting and implementing the provisions of the 1996 Act. At this time, it is impossible to state with precision the full impact the 1996 Act will have on the Company. The 1996 Act phases out cable rate regulation, except with respect to the "basic" tier (which must include all local broadcast stations and public, educational and governmental access channels and must be provided to all subscribers). Beyond the basic tier of cable service, which continues to be regulated by the local franchising authorities ("LFAs"), rate regulation of other cable services between now and 1999 will only be triggered by a valid rate complaint by a LFA, and only in an area where no effective competition exists. Once a system's rates are initially set, the rules permit subsequent increases that reflect inflation and increases in existing programming costs and certain other costs. The rules thus permit cable operators that carried, for example, The Family Channel when their rates were initially regulated to pass through to subscribers any subsequent increases in licensing fees, subject to a cap which will expire this year. Systems may also increase rates when they add new channels to regulated tiers, but there is a cap on such increases. Alternatively, systems may create "new product tiers" consisting entirely of services not previously offered on regulated tiers, and these new product tiers will generally not be subject to rate regulations. Rate regulation under the 1992 Act resulted in a reduction of rates to some subscribers in some markets. The deregulation under the 1996 Act may, however, result in an increase in rates in some markets. In response to the 1992 Act and the FCC's implementing regulations, many cable systems retiered channels to create an attractively priced basic tier consisting exclusively of broadcast and public, educational, and governmental access channels, while offering satellite-delivered programming services such as The Family Channel on a different service tier or on an a la carte basis. To the extent that such retiering or repricing of the Company's networks induces customers to discontinue their subscriptions, the Company's financial performance could be adversely affected. Deregulation of rates pursuant to the 1996 Act may reverse such tiering and pricing decisions by cable system operators and, correspondingly, reverse or ameliorate any adverse effects of the 1992 Act, although the impact of the 1996 Act and its implementing regulations cannot be predicted at this time. The 1996 Act addresses obscenity, indecency and violence in connection with telecommunications services in several respects, including the establishment of an encrypted rating in all video programming that, when used in conjunction with so-called "V-Chip" technology, would permit the blocking of programs with a common rating. On January 17, 1997, an industry proposal, as revised, was submitted to the FCC describing a voluntary ratings system for all video programming. The industry proposal was revised and resubmitted to the FCC on August 1, 1997. Pursuant to the 1996 Act, the FCC is conducting separate proceedings (i) to determine whether to accept the industry proposal or establish and implement an alternative system for rating and blocking video programming and (ii) addressing technical issues relating to the "V-Chip." The Company cannot predict whether the FCC will accept the industry proposal regarding the rating and blocking of video programming, or how changes in this proposal or the implementation of "V-Chip" technology could affect the Company's business. Under the FCC's closed captioning rules, which became effective January 1, 1998, program distributors, and not producers, are generally responsible for compliance with captioning rules. However, program distributors--defined to include entities that distribute programming to subscribers--may demand certifications from program producers that programming meets the minimum captioning requirements. The rules divide programming into two groups: pre- rule programming (which is defined to be programming that was first published or exhibited on or before January 1, 1998 by any distribution method) and new programming (programming that was first published or exhibited after that date). Pre-rule programming is subject to no specific requirements until the first calendar quarter of 2008. In that quarter, 75% of all pre-rule programming actually aired or shown by a distributor is required to be captioned. Compliance is measured on a per-channel basis, as averaged per calendar quarter. Beginning in the first calendar quarter of 2000, new programming that is not 64 otherwise exempt from captioning requirements is subject to a series of quarterly benchmarks, until by January 1, 2006, 95% of all new, non-exempt programming is to be captioned. The rules exempt new networks (cable and non- cable) for four years from launch date; networks with less than $3 million in annual gross revenues (not counting affiliate revenues); and companies which have already devoted 2% of annual gross revenues to closed captioning expenses. The FCC also may grant waivers on a case by case basis. The FCC's rules are subject to petitions for reconsideration and the extent to which the Company, as both a producer and distributor of programming, will be required to comply with captioning requirements is not clear. To the extent the 1996 Act fosters greater competition for the provision of multichannel video services to individual subscribers, the Company should generally be impacted either neutrally or advantageously, as additional providers are additional potential customers for the Company. To the extent, however, that rate deregulation causes a material increase in cable rates, the subscriber base could be decreased potentially affecting the Company's subscriber revenues. Further, the Company may be called upon to provide increased closed captioning to assist in complying with rules promulgated under the 1996 Act and may be required to provide assistance or information to establish ratings for its programming. Either of these undertakings could increase the Company's operating expenses. The 1992 Act subjects cable systems to "must carry" rules, pursuant to which local broadcast stations elect to demand carriage. It also provides favorable channel positioning rights for broadcasters electing to exercise their must carry rights. The 1992 Act also gives television broadcast stations the right to withhold consent to be carried by a cable system which may result in a station receiving compensation for carriage. Congress and the FCC have under consideration, and in the future may consider and adopt, new laws, regulations and policies regarding a wide variety of matters that may affect, directly or indirectly, the operation, ownership and profitability of the Company's business. These proposed changes include, for example, expansion of program access requirements and potential must-carry rights for digital television broadcast stations (which could limit multi video program distributions ("MVPDs"') channel capacity available for the Company's programming). In the Fourth Annual Cable Competition Report, released January 13, 1998, the Commission expressed concern regarding recent cable rate increases and increases in programming costs. The Chairman of the FCC has directed the Cable Services Bureau to commence an inquiry into, among other things, the reasons for increases in programming costs and whether such cost increases should be passed through to subscribers. The Company is unable to predict the outcome of future federal legislation or the impact of any such laws or regulations on its operations. State and Local Regulation Cable television systems are generally constructed and operated under non- exclusive franchises granted by a municipality or other state or local governmental entity. Franchises are granted for fixed terms and are subject to periodic renewal. The 1984 Act places certain limitations on a LFA's ability to control the operations of a cable operator, and the courts from time to time have reviewed the constitutionality of several franchise requirements, often with inconsistent results. The 1992 Act prohibits exclusive franchises, and allows LFAs to exercise greater control over the operation of franchised cable television systems, especially in the areas of customer service and rate regulation. The 1992 Act also allows LFAs to operate their own multichannel video distribution systems without having to obtain franchises. Moreover, LFAs are immunized from monetary damage awards arising from their regulation of cable television systems or their decisions on franchise grants, renewals, transfers, and amendments. The terms and conditions of franchises vary materially from jurisdiction to jurisdiction. Cable franchises generally contain provisions governing time limitations on the commencement and completion of construction, and governing conditions of service, including the number of channels, the types of programming (but not the actual cable programming channels to be carried), and the provision of free service to schools and certain other public institutions. The specific terms and conditions of a franchise and the laws and regulations under which it is granted directly affect the profitability of the cable television system, and thus the cable television system's financial ability to carry programming. Local governmental authorities also may certify to regulate basic cable rates. Local rate regulation for a particular system could result in resistance on the part of the cable operator to the amount of subscriber fees charged by the Company for its programming. 65 Various proposals have been introduced at the state and local level with regard to the regulation of cable television systems, and a number of states have enacted legislation subjecting cable television systems to the jurisdiction of centralized state governmental agencies. International The Company is also subject to local content and quota requirements in international markets which, although a significant portion of the Company's library meets such current requirements in Europe, effectively limit access to particular markets. FACILITIES The Company currently leases a total of approximately 217,000 square feet of office and production space in its headquarters building in Los Angeles, California under a lease expiring in April 2006, subject to two separate five- year extension options. As of April 1, 1997, certain of the Fox Kids Network employees and other Company employees relocated to a new facility in Los Angeles which FOX Television recently acquired from New World. The Fox Kids Network leases approximately 24,123 square feet in such facility. No rent has been paid yet for this lease and the rate has not been negotiated. The Company also leases a multi-purpose production facility in Valencia, California under a lease that expires in January 1999. The Company's Paris animation studio currently leases 1,379 square meters of office and production space under a lease expiring February 28, 2005; this lease may be cancelled by the Company with six months prior notice on February 28, 1999 or February 28, 2002. The Company also leases approximately 14,500 square feet of office space for its European headquarters in London, England under a lease expiring September 30, 2007. This lease may be cancelled after the fifth year with nine months advance notice. In connection with IFE Acquisition, the Company acquired IFE's executive and administrative offices, a sales office and an affiliate relations office in Virginia Beach, Virginia. The Company also continues to lease from CBN a portion of a corporate support building for its master control, satellite uplink and postproduction facilities. The Company also leases office facilities in other locations throughout the world, none of which are considered material. The Company believes that its current office and production space, together with space readily available without material cost in the markets in which it operates, are adequate to meet its needs for the foreseeable future. EMPLOYEES As of December 31, 1997, the Company (excluding IFE) had 500 full-time and 5 part-time employees in the United States and 121 full-time employees outside the United States. In connection with the IFE Acquisition, the Company added 430 full-time and 150 part-time employees in the United States. As part of the Company's planned sale or disposition of certain of IFE's businesses, the number of IFE employees will be reduced. The Company also regularly engages freelance creative staff and other independent contractors on a project-by- project basis. The Company believes its relations with its employees are good. 66 INTELLECTUAL PROPERTY The Company generally holds copyrights to its owned programming in its library. Additionally, the Company holds registered trademarks on the various characters and series contained in its owned programming. The Company also holds significant rights as licensee of other productions, programming, characters and series, most of which are subject to copyrights and trademarks owned by the respective licensors of such properties. The following table lists the Company's network and syndication programming for the 1997-1998 season, the nature of the ownership of the copyrights and trademarks associated with such programming and certain restrictions applicable to such licensed copyrights and trademarks.
INTELLECTUAL PROPERTY DISTRIBUTION RIGHTS --------------------- ---------------------------------------------------------------------- HOME NON- COPYRIGHTS TRADEMARKS TERRITORY TELEVISION VIDEO THEATRICAL THEATRICAL MERCHANDISING ---------- ---------- ---------------- ---------- ----- ---------- ---------- ------------- Saban's Adventures of Oliver Twist * * Worldwide * * * * * BeetleBorgs Metallix * * Worldwide * * * * * (except Asia) Bobby's World * * Worldwide * * * * * Breaker High *(1) * Worldwide * * * * * (except Canada) DragonBall Z --(2) --(2) United States * -- -- -- -- Eek!Stravaganza * * Worldwide * * * * * Life With Louie * * Worldwide * * * * * Power Rangers in Space * * Worldwide * * * * * (except Asia) Power Rangers Turbo * * Worldwide * * * * * (except Asia) Sweet Valley High * -- Worldwide * * * * * (except publishing) The Tick * * Worldwide * * * * * X-Men --(3) --(3) Worldwide * * -- -- -- Casper -- -- United States, *(4) -- -- -- -- Latin America, United Kingdom Goosebumps -- -- Worldwide, * -- -- -- -- except Canada Sam & Max -- -- United States, * *(5) -- -- -- United Kingdom, Australia, New Zealand, Mexico, Central America, South America Silver Surfer -- -- United States * * -- -- -- Space Goofs --(6) --(6) United States, * * -- -- * Canada Stickin' Around -- -- United States * -- -- -- -- The All New Captain Kangaroo * *(7) Worldwide * * * * * Marvel Superheroes --(8) --(8) Worldwide * * -- -- -- Toonsylvania -- -- United States, *(4) -- -- -- -- Latin America, United Kingdom Ninja Turtles: The Next * --(9) Worldwide * * -- -- -- Mutation (except Canada)
- -------- ("*" Company owns the intellectual property rights or programming distribution rights; "--" Company does not own the intellectual property rights or programming distribution rights) (1) The Company owns worldwide copyrights, except in Canada. 67 (2) FUNimation and Toei Animation own copyrights and trademarks. The Company has exclusive U.S. distribution rights on a year-to-year basis through 2001. (3) Marvel owns copyrights and trademarks. The Company has exclusive distribution rights for 15 years. (4) Company controls all forms of television in the United States, but only cable and satellite rights in the United Kingdom and Latin America. (5) Home Video rights are worldwide, excluding the United States. (6) Gaumont Multimedia owns the copyrights and trademarks. The Company has exclusive U.S. and Canadian distribution rights through 2002. (7) The Company uses the trademarks under license from Robert Keeshan Associates, Inc. (8) New World and Marvel own the copyrights and trademarks. The Company has exclusive worldwide distribution rights. (9) The Company owns worldwide copyrights, except in Canada. Trademarks are used under a license from Mirage Studios. The Company considers its owned and licensed copyrights and trademarks to be of significant value and importance to the Company's business. Accordingly, the Company's policy is to vigorously enforce copyrights and trademarks with respect to owned and licensed programming against unlawful infringement by third parties. LEGAL PROCEEDINGS The Company currently and from time to time is engaged in litigation in the ordinary course of its business. The Company is not currently a party to any lawsuit or proceeding which, in the opinion of management, if decided adversely to the Company, would be likely to have a material adverse effect on the Company's financial condition and results of operations. 68 MANAGEMENT DIRECTORS AND EXECUTIVE OFFICERS The directors and executive officers of the Company, and their ages at January 1, 1998, are as follows:
NAME AGE POSITION ---- --- -------- Haim Saban.............. 53 Chairman of the Board and Chief Executive Officer of the Company; Chairman and Chief Executive Officer of Saban; Co-Chairman of IFE Mel Woods............... 46 President, Chief Operating Officer, Chief Financial Officer and Director of the Company; President and Chief Operating Officer of Saban; Executive Vice President and Chief Operating Officer of IFE Shuki Levy.............. 51 Executive Vice President and Director of the Company William Josey........... 51 Senior Vice President, Business Affairs and General Counsel of Saban, Secretary of the Company Mark Ittner............. 45 Chief Accounting Officer of the Company and Senior Vice President of Finance of Saban K. Rupert Murdoch....... 66 Director Chase Carey............. 44 Director Lawrence Jacobson....... 38 Director
HAIM SABAN, the founder of Saban, has served as the Chairman of the Board and Chief Executive Officer of the Company since its inception in August 1996, and Chairman and Chief Executive Officer of Saban since the establishment of Saban in 1983. Mr. Saban is a creator and executive producer of the Company's live-action series, Power Rangers. MEL WOODS has served as President, Chief Operating Officer, Chief Financial Officer and a director of the Company since its inception in August 1996. Mr. Woods has also been the President and Chief Operating Officer and a director of Saban since 1991. From 1987 to 1991, Mr. Woods served as Senior Vice President and Chief Financial Officer of DIC Enterprises, an animation production company. Prior to joining DIC, Mr. Woods was Senior Vice President, Chief Financial Officer and Treasurer of Orion Pictures Corp. and served as a member of its board of directors. SHUKI LEVY became the Executive Vice President and a director of the Company in 1996 and is responsible for productions. Mr. Levy has served as an independent contractor performing production related assignments for Saban since 1983. Mr. Levy is executive producer of the Company's live-action series, Power Rangers, and also serves as executive producer for Big Bad BeetleBorgs and Masked Rider. WILLIAM JOSEY has served as Secretary of the Company since its inception in August 1996, and Senior Vice President, Business Affairs and General Counsel of Saban since joining Saban in 1991. Prior to joining Saban, Mr. Josey served as Senior Vice President of MGM/UA Telecommunications, supervising business and legal matters. During the past 20 years, Mr. Josey has also held a number of executive positions, including Vice President of Business and Legal Affairs for The Disney Channel; Vice President of Business Affairs for Lorimar Television and Vice President of Business Affairs for Polygram Television. MARK ITTNER has served as Chief Accounting Officer of the Company since its inception in August 1996, and as Senior Vice President of Finance of Saban since 1995 and as Vice President of Finance from 1993 to 1995. From 1990 to 1993, Mr. Ittner served as Vice President and Controller of Imagine Films, a motion picture and television production company. Prior to joining Imagine Films, Mr. Ittner was the acting Co-Chief Financial Officer of Weintraub Entertainment Group, after joining Weintraub as a Vice President and Controller in January 1988. From 1979 to 1984, Mr. Ittner was first Assistant Controller and then in 1984, Vice President and Controller, of Hanna-Barbera Productions, Inc. and its parent company, The Taft Entertainment Company. 69 K. RUPERT MURDOCH has served as a director of the Company since August 1996. Mr. Murdoch is an Executive Director and has been the Chief Executive of News Corp. since its formation in 1979 and has served as its Chairman since 1991. From 1969 to 1979, Mr. Murdoch served as Chief Executive of News International plc, which is now News Corp.'s principal operating subsidiary in the United Kingdom. From 1953 to 1969, Mr. Murdoch served as Chief Executive of News Limited, which is now News Corp.'s principal operating subsidiary in Australia. Mr. Murdoch has served as Chairman of the Star Television Group since 1993 and as a Director of BSkyB since 1990. Mr. Murdoch is also a member of the board of directors of Philip Morris Companies, Inc. CHASE CAREY has served as a director of the Company since August 1996. Mr. Carey is an Executive Director and has been the Co-Chief Operating Officer of News Corp. since October 1996. Mr. Carey has served as the Chairman and Chief Executive Officer of FOX Television since July 1994. Mr. Carey is responsible for all divisions of FOX Television including Fox Broadcasting, Fox Television Stations, Twentieth Television's domestic syndication unit and FOX Television's cable interests. Mr. Carey joined Fox Inc. in 1988 as Executive Vice President, served as Chief Financial Officer, and assumed the title of Chief Operating Officer in February 1992. Prior to joining FOX Television, Mr. Carey worked at Columbia Pictures in several executive positions, including President of Pay/Cable and Home Entertainment and Executive Vice President of Columbia Pictures International. Mr. Carey is a member of the boards of directors of Gateway 2000 and Colgate University. LAWRENCE JACOBSON has served as a director of the Company since November 1997. Mr. Jacobson was named President of FOX Television Network, in September 1997. Mr. Jacobson had been Executive Vice President of Fox Television since May 1996, and was named Executive Vice President and Chief Financial Officer of Fox Broadcasting Company in July 1994. Mr. Jacobson joined Fox Inc. in December 1990 as Vice President, Finance, and became Senior Vice President, Finance in July 1992. Prior to Fox Inc., Mr. Jacobson had been Vice President of Corporate Finance and Strategic Planning for Weintraub Entertainment Group since December 1989. He joined the company as Vice President, Motion Picture Division, in May 1987. He previously served as Manager, Pay Cable and Home Entertainment Group, Columbia Pictures, from 1985 to 1987. ELECTION OF DIRECTORS; CHANGE IN CONTROL Pursuant to the terms of an Amended and Restated Strategic Stockholders Agreement dated as of August 1, 1997 between, among others, Fox Broadcasting and Haim Saban and the former Saban Stockholders (the "Amended and Restated Strategic Stockholders Agreement"), Fox Broadcasting and Mr. Saban have agreed to vote all of the shares of Class B Common Stock beneficially owned by each of them to the election of three directors designated by Fox Broadcasting and three directors designated by Mr. Saban. If in the future the Company becomes subject to any requirement that the Company's Board of Directors include independent directors, Fox Broadcasting and Mr. Saban are each to include among their respective slates of nominees the number of independent directors necessary to satisfy such requirement. Fox Broadcasting and Mr. Saban will mutually agree on two independent directors. If they are unable to mutually agree, Fox Broadcasting will nominate one independent director and Mr. Saban will nominate the other and they will each vote for both nominees. 70 If either Haim Saban or Fox Broadcasting transfers more than one-third of its initial holdings of Class B Common Stock (Mr. Saban's holdings to include the shares of the former Saban Stockholders), then Fox Broadcasting or Mr. Saban, as the case may be, has the right to designate the remaining two-thirds of the authorized number of directors. As part of the voting provisions of the Amended and Restated Strategic Stockholders Agreement, both Mr. Saban and Fox Broadcasting have agreed to a standstill whereby neither of them will, without the consent of the other, among other things, (i) purchase, acquire, offer or agree to purchase or acquire any shares of capital stock or other voting securities of the Company; (ii) solicit stockholders for the approval of stockholder proposals; or (iii) otherwise act, alone or in concert with others, to assert or encourage any other person or entity in seeking to control the management, board of directors or policies of the Company or to propose or effect a business combination, restructuring, recapitalization, liquidation, dissolution or similar transaction. Fox Broadcasting's designees are currently K. Rupert Murdoch, Chase Carey and Lawrence Jacobson. Haim Saban, Mel Woods and Shuki Levy are the designees of Haim Saban. Under an agreement among Fox Broadcasting, Haim Saban and the former Saban Stockholders, Fox Broadcasting has the right and option, commencing in December 2002 or earlier in certain circumstances, to acquire all of the shares of Class B Common Stock of the Company then held by Mr. Saban and the former Saban Stockholders, and pursuant to the Amended and Restated Strategic Stockholders Agreement, Mr. Saban has the right and option, commencing in December 2000, or earlier in the event of a change in control of Fox Broadcasting or certain limited circumstances, to cause Fox Broadcasting to purchase all of these shares. See "Certain Transactions--Formation of the LLC and the Reorganization." EXECUTIVE COMPENSATION The following table sets forth the aggregate cash and non-cash compensation paid or accrued by the Company to the Chief Executive Officer and the other four most highly compensated executive officers ("Named Executive Officers") compensated in excess of $100,000 for the fiscal year ended June 30, 1997. Compensation decisions are currently made by the President and the Chief Executive Officer. SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION ----------------------- OTHER ANNUAL NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION --------------------------- ---- ------ ------- ------------ Haim Saban................................ 1997 $1,000,000 -- (1) Chairman of the Board and Chief Executive Officer Mel Woods................................. 1997 452,100 650,000 (1) President, Chief Operating Officer and Chief Financial Officer Margaret Loesch(2)........................ 1997 562,500 455,400 (1) Shuki Levy................................ 1997 500,000 700,000 (1) Executive Vice President William Josey............................. 1997 256,300 10,000 (1) Senior Vice President, Business Affairs and General Counsel of Saban
- -------- (1) Less than either $50,000 or 10% of total annual salary and bonus. (2) Ms. Loesch's employment with the Company was terminated effective November 21, 1997. See "Certain Transactions--Transactions between Haim Saban, other Executive Officers and Saban" for information with respect to certain loans, forgiveness of loans and other transactions for the benefit of certain of the Named Executive Officers. 71 STOCK OPTIONS The following table summarizes information with respect to the number of shares of Class A Common Stock underlying stock options held by each of the Named Executive Officers at June 30, 1997, and the value of unexercised options, assuming a value of $ per share, which is the . AGGREGATED FISCAL YEAR-END OPTION VALUES
NUMBER OF SECURITIES UNDERLYING UNEXERCISED VALUE OF UNEXERCISED IN-THE-MONEY OPTIONS AT FISCAL YEAR-END OPTIONS AT FISCAL YEAR-END ------------------------------------------- --------------------------------- NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE ---- ----------- ---------------------- ---------------- ----------------- Haim Saban.............. -- -- $ $ Mel Woods............... 96,982 64,655 Margaret Loesch(1)...... 32,327 129,310 Shuki Levy.............. 96,982 64,655 William Josey........... -- --
- -------- (1) Upon the termination of Margaret Loesch's employment with the Company in November 1997, all of her options were terminated. Under the terms of the option agreements, an executive whose employment is terminated must sell his or her stock options (together with any shares acquired pursuant to the exercise of such options, the "Option Shares") to the Company for an amount equal to the fair market value of such shares plus the fair market value of the shares with respect to which the executive's option has vested but has not been exercised, less the executive's purchase price. Such amount is to be paid to the executive 10% in cash and 90% by a promissory note to be payable in nine equal annual installments. In addition, in the event Haim Saban, any member of his immediate family or any of his affiliated entities (with Haim Saban and such family members, the "Saban Entities") sells to a third party any shares of common stock of the Company (the "Saban Company Shares"), each executive must sell the "applicable percentage" of his or her Option Shares for the same per share consideration paid by the third party for the Saban Company Shares. The "applicable percentage" is equal to the percentage of the Saban Company Shares sold to the third party out of the total shares of the Company owned by the Saban Entities immediately prior to the sale. The Company must purchase such shares for cash consideration equal to the applicable percentage of the per share consideration paid by the third party for the Saban Company Shares multiplied by the number of Option Shares with respect to which such executives' options have vested but have not been exercised, less the purchase price. EMPLOYMENT AGREEMENTS Haim Saban Haim Saban has an employment agreement with the Company which extends through June 30, 2002. Pursuant to the terms of the agreement, Mr. Saban is to be paid an annual salary of $1.0 million. Mr. Saban may not be removed or replaced with or without cause until he and the other stockholders of the Company whose shares he controls collectively transfer more than one-third of the number of shares of Class B Common Stock they currently beneficially own. If Mr. Saban is terminated following such an event, he will be entitled to receive an amount equal to his annual base salary from the date of his termination through June 30, 2002. Under the agreement, Mr. Saban may engage in certain activities for his own account, including music publishing, investments and charity. The agreement generally provides that Mr. Saban will not, during the term of his employment and for a period of five years thereafter, compete with the Company. William Josey William Josey has an employment agreement with Saban that extends through March 31, 2000. Mr. Josey is to be paid an annual base salary of $300,000, $315,000 and $330,000 for each of the 1997-98, 1998-99 and 1999-2000 periods, respectively. The employment agreement provides that the Company may terminate Mr. Josey's employment only for cause. 72 The Company has employment agreements with each of Mel Woods and Shuki Levy. Each such agreement contains substantially the same terms and conditions as the others. The Company may terminate each such executive's employment at any time with or without cause, and the executive may terminate his or her employment upon the Company's material breach of the employment agreement. If the executive is terminated by the Company with cause, he or she will be entitled to receive (i) annual base salary for the period in which the date of termination falls, prorated to the date of such termination and (ii) vested rights with respect to certain stock options granted in connection with the employment agreement. Should the executive terminate his or her employment or should his or her employment be terminated by the Company without cause, the executive will be entitled to receive (i) his or her annual base salary for the period in which the date of termination falls, pro-rated to the date of such termination, (ii) severance pay for the balance of the term of the employment agreement, subject to offset against the executive's future earnings, (iii) bonus compensation for the period in which the date of termination falls, pro-rated to the date of such termination and (iv) vested rights with respect to certain stock options granted in connection with the employment agreement. Summarized below are terms of the employment agreements that are different for each executive. Mel Woods. The term of Mr. Woods' employment agreement with the Company extends through May 31, 1999. Mr. Woods is to be paid an annual base salary of $475,000 and $500,000 for each of the 1997-98 and the 1998-99 periods, respectively, and an annual contingent bonus which is limited to $675,000 and $700,000 for each of the 1997-98 and 1998-99 periods, respectively. Shuki Levy. Mr. Levy's employment agreement with the Company extends through May 31, 1999. Mr. Levy is to be paid an annual base salary of $500,000 for each of the 1997-98 and 1998-99 periods and is eligible to receive additional benefits. 73 PRINCIPAL STOCKHOLDERS The following table sets forth certain information as of January 1, 1998 with respect to the shares of Class A Common Stock and Class B Common Stock beneficially owned by (i) each director of the Company; (ii) each person known to the Company to be the beneficial owner of more than 5% of either class of Common Stock; (iii) each Named Executive Officer; and (iv) all directors and executive officers of the Company as a group. Except as may be indicated in the footnotes to the table, each of such persons has the sole voting and investment power with respect to the shares owned, subject to applicable community property laws. The address of each person listed is in care of the Company, 10960 Wilshire Boulevard, Los Angeles, California 90024.
CLASS A CLASS B COMMON STOCK (1) COMMOM STOCK (1) ----------------- ------------------ PERCENT PERCENT OF NUMBER OF NUMBER CLASS OF CLASS OF SHARES OWNED SHARES OWNED --------- ------- ---------- ------- Haim Saban(2)............................ 15,840,000 100.0% Silverlight Enterprises, L.P.(2)(3)...... 2,759,724 17.4 Fox Broadcasting(2)...................... 15,840,000 100.0 Allen & Co. Incorporated................. 160,000 100.0% Mel Woods................................ 96,982 37.7 Margaret Loesch.......................... -- -- -- -- Shuki Levy............................... 96,982 37.7 William Josey............................ -- -- -- -- K. Rupert Murdoch........................ 15,840,100 100.0 Chase Carey.............................. 15,840,000 100.0 Lawrence Jacobson........................ -- -- -- -- All of the Company's executive officers and directors as a group (seven persons)................................ 193,964 54.8% 15,840,000 100.0%
- -------- * Less than one percent (1) Under Rule 13d-3 of the Exchange Act, certain shares may be deemed to be beneficially owned by more than one person (if, for example, persons share the power to vote or the power to dispose of the shares). In addition, shares are deemed to be beneficially owned by a person if the person has the right to acquire the shares (for example, upon exercise of an option) within 60 days of the date as of which the information is provided. In computing the percentage ownership of any person, the amount of shares outstanding is deemed to include the amount of shares beneficially owned by that person (and only that person) by reason of these acquisition rights. As a result, the percentage of outstanding shares of any person as shown in this table does not necessarily reflect the person's actual ownership or voting power with respect to the number of shares of Common Stock actually outstanding at January 1, 1998. (2) Pursuant to Rule 13d-3 under the Exchange Act, Haim Saban and Fox Broadcasting may be deemed to beneficially own all shares of Class B Common Stock held by each of them, and by the other stockholders identified in the following table, as the result of an agreement (the "Voting Agreement") pursuant to which Mr. Saban and Fox Broadcasting have the right to direct the voting of such shares with respect to all matters submitted to a vote of stockholders, including the election of directors of the Company. With regard to the election of directors, Fox Broadcasting has agreed to vote in favor of three nominees designated by Haim Saban and Haim Saban has agreed to vote in favor of three nominees designated by Fox Broadcasting. If either Haim Saban, together with the entities he controls, or Fox Broadcasting owns less than 2,640,000 shares of Class B Common Stock, then, at the option of the other, the Voting Agreement will terminate. As part of the Voting Agreement, both Mr. Saban and Fox Broadcasting have agreed to a standstill whereby neither of them will, without the consent of the other, among other things, (i) purchase, acquire, offer or agree to purchase or acquire any shares of capital stock or other voting securities of the Company; (ii) solicit stockholders for the approval of stockholder proposals; or (iii) otherwise act, alone or in concert with others, to assert or encourage any other person or entity in seeking to control the management, board of directors 74 or policies of the Company or to propose or effect a business combination, restructuring, recapitalization, liquidation, dissolution or similar transaction. See "Management--Agreement Regarding Election of Directors: Change in Control." (3) Pursuant to Rule 13d-3 under the Exchange Act, Haim Saban may be deemed to beneficially own all shares of Class B Common Stock held by Silverlight Enterprises, L.P. as the result of the Voting Agreement pursuant to which Mr. Saban has the right to direct the voting of these shares with respect to all matters submitted to a vote of the stockholders, including the election of directors of the Company. Under agreements between Mr. Saban, the other Saban Stockholders and Fox Broadcasting, Fox Broadcasting has the right and option, commencing in December 2002 or earlier in certain circumstances, to acquire all of the shares of Class B Common Stock of the Company held by Mr. Saban and the other Saban Stockholders and Mr. Saban has the right and option, commencing in December 2000, or earlier in the event of a change in control of Fox Broadcasting or certain limited circumstances, to cause Fox Broadcasting to purchase all of such shares. As of January 1, 1998, the total number of shares of Class B Common Stock and the percentage of Class B Common Stock beneficially owned by Mr. Saban, the entities which he controls, and Fox Broadcasting over which each member thereof had sole investment power was as follows:
NUMBER AGGREGATE OF SHARES VOTING POWER --------- ------------ Haim Saban.......................................... 3,737,844 23.6% Quartz Enterprises, L.P. ........................... 760,320 4.8 Merlot Investments, a California general partnership........................................ 645,381 4.1 Silverlight Enterprises, L.P. ...................... 2,759,724 17.4 Celia Enterprises, L.P. ............................ 16,731 0.1 Fox Broadcasting.................................... 7,920,000 50.0%
(4) Because of their positions with the Company, each of Messrs. Murdoch and Carey may be deemed to beneficially own all of the shares of Class B Common Stock owned or controlled by Fox Broadcasting. Each of Messrs. Murdoch and Carey disclaims any pecuniary interest in such securities. 75 DESCRIPTION OF EQUITY SECURITIES The authorized capital stock of the Company consists of 16,000,000 shares of Class A Common Stock, 16,000,000 shares of Class B Common Stock and 20,000,000 shares of Preferred Stock, of which 500,000 shares have been designated as Series A Preferred Stock. As of January 23, 1998, 160,000 shares of Class A Common Stock, 15,840,000 shares of Class B Common Stock and 345,000 shares of Series A Preferred Stock were outstanding. The following descriptions contain material provisions of the securities of the Company and certain provisions of the Company's Corrected Restated Certificate of Incorporation and Amended and Restated Bylaws (the "Bylaws"). THE COMMON STOCK The holders of Class A Common Stock (the "Class A Stockholders") are entitled to one vote per share and the holders of Class B Common Stock (the "Class B Stockholders") are entitled to ten votes per share. Both classes vote together as a single class. A majority vote (or any other greater percentage) for stockholder action requires a majority of the aggregate number of votes entitled to be cast at such vote. The Company's Corrected Restated Certificate of Incorporation does not provide for cumulative voting rights. Subject to the rights of the holders of shares of any series of Preferred Stock, the Class A and Class B Stockholders are to receive like dividends and other similar distributions of the Company. In the case of any split, subdivision, combination or reclassification of shares of Class A or Class B Common Stock, an equivalent split, subdivision, combination or reclassification must be made to the shares of Class B or Class A Common Stock, as the case may be. The Class A and Class B Stockholders have equivalent rights to distributions in the event of any liquidation, dissolution or winding up (either voluntary or involuntary) of the Company, in proportion to the number of shares held by them without regard to class. In the event of any corporate merger, consolidating purchase or acquisition, the Class A and Class B Stockholders are to receive the same consideration on a per share basis, and if the consideration in such transaction consists in any part of voting securities, the Class B Stockholders are to receive, on a per share basis, voting securities with ten times the number of votes per share as those voting securities to be received by the Class A Stockholders. The shares of Class A Common Stock are freely transferable, but the shares of Class B Common Stock are subject to transfer restrictions as set forth more fully in the Company's charter. The Class B Stockholders may only transfer their shares to a "Permitted Transferee" and any unauthorized transfer will cause an automatic conversion of such shares into shares of Class A Common Stock. Regardless of the transfer restriction on the Class B Common Stock, any Class B Stockholder may pledge its shares as collateral security for any indebtedness or other obligation. Each share of Class B Common Stock is convertible, at the option of its holder, at any time into one validly issued, fully paid and non-assessable share of Class A Common Stock. THE SERIES A PREFERRED STOCK The holders of the Series A Preferred Stock will receive cash dividends of 9% per annum in arrears, paid quarterly. Any accrued or unpaid dividends will be added to the liquidation price and until such accrued and unpaid dividends are paid in full, the dividend rate will increase to 11.5% of the liquidation price. The liquidation price is $1,000 per share plus any accrued and unpaid dividends. 76 Pursuant to the Funding Agreement among News Corp., NPAL, a wholly owned subsidiary of News Corp., and the Company (the "Funding Agreement"), each of News Corp. and NPAL has, jointly and severally, agreed that, upon the occurrence and during the continuation of an event of default under the provisions governing the Series A Preferred Stock in the Company's Corrected Restated Certificate of Incorporation or liquidation, dissolution, winding up or other similar event of the Company, News Corp. or NPAL, as the case may be, will provide the Company with the funds necessary to redeem in full, or pay the liquidation distribution on, all of the outstanding Series A Preferred Stock and to pay any other amounts owing in respect of such shares. Pursuant to the Amended and Restated Strategic Stockholders Agreement (as defined), such funds will be, except under certain circumstances, in the form of an advance or loan to the Company. See "Certain Transactions--Formation of the LLC and the Reorganization." The following constitute events of default with respect to the Series A Preferred Stock under the Corrected Restated Certificate of Incorporation of the Company: (i) the failure by the Company to mandatorily redeem Series A Preferred Stock at the redemption dates indicated below; (ii) a breach for thirty days of any of the covenants contained in the provisions governing the Series A Preferred Stock (which may include a breach of the Funding Agreement, including a net worth covenant therein); and (iii) an event of default under the terms of the preferred stock of NPAL, if any shares of which are outstanding. Upon an event of default, the Series A Preferred Stock may be redeemed, at the holder's option, at a specified redemption price (which may include a penalty under certain circumstances). In addition, pursuant to the Exchange Agreement among NPAL, Liberty Media Corporation ("Liberty Media") and Liberty IFE, each of the holders of the Series A Preferred Stock has the right, upon the occurrence and during the continuation of an event of default under the Corrected Restated Certificate of Incorporation or the liquidation, winding up or other similar event of the Company, to exchange their shares for an equivalent number of shares of preferred stock of NPAL. The Series A Preferred Stock issued to Liberty IFE will rank senior as to dividend, redemption and liquidation rights to all other classes and series of capital stock of the Company authorized on the date of issuance, or to any other class or series of capital stock issued while any shares of the Series A Preferred Stock remain outstanding. The Series A Preferred Stock does not have voting rights, except as required by law, nor will holders of Series A Preferred Stock have preemptive rights over any stock or securities that may be issued by the Company. The Series A Preferred Stock will be redeemed in 2027 at a price equal to the liquidation price as of the date of such redemption, payable in cash. In years 2017 and 2022, holders of the Series A Preferred Stock have a thirty day period commencing August 2 of such years in which they can require the Company to redeem the Series A Preferred Stock at a price equal to the liquidation price, payable in cash. At any time after August 1, 2007, the Company may, at its option, repurchase all shares of Series A Preferred Stock, again at a price equal to the liquidation price, payable in cash. Under such redemption requirements, any failure by the Company to redeem the Series A Preferred Stock will obligate News Corp. and NPAL to perform under the Funding Agreement. 77 CERTAIN TRANSACTIONS FORMATION OF THE LLC AND THE REORGANIZATION In connection with the formation of the LLC, Haim Saban, Saban and the Fox Parties entered into a series of agreements. As a result of the Reorganization, the LLC became a subsidiary of the Company and the Company is entitled to the benefits of and subject to these agreements. On November 1, 1995, Saban, FCN Holding and Fox Broadcasting entered into a LLC Formation Agreement pursuant to which the parties agreed to cause the formation of the LLC. Pursuant thereto, Fox Broadcasting agreed to enter into an Asset Assignment Agreement (described below) with the LLC, and to deliver all cash, documents and other assets at the closing of the formation. In addition, FCN Holding and Saban each paid and contributed $100,000 to the LLC. In consideration for their respective contributions to the LLC, Fox Broadcasting received a non-voting Class A Members Interest and each of Saban and FCN Holding received a Class B Members Interest. As a Class A Member of the LLC, Fox Broadcasting was granted a priority right to receive distributions of Distributable Cash (defined below) and other distributions until it had received aggregate distributions in an amount equal to $40 million. "Distributable Cash" generally means the amount of cash available for distribution by the LLC (including cash available from Saban and FCN Holding and their respective subsidiaries), taking into account all cash, debts, liabilities and obligations of the LLC then due and after setting aside reserves to provide for the LLC's capital expenditures, debt service, working capital and expansion plans. As described below, in September 1996, Fox Broadcasting purchased, for $10 million cash, an additional $10 million of Class A Members Interests. Fox Broadcasting also made a $64.5 million interest free loan to the LLC, of which $14.5 million was repaid in September 1996. The $50 million remainder of this loan was to be repaid from time to time out of Distributable Cash of the LLC before any distributions were made on the Class A and Class B Members Interests. In connection with the Reorganization, Fox Broadcasting contributed to the Company, pursuant to an Agreement Re Transfer of LLC Interests, the Class A Members Interest and the $50 million remainder of the loan in exchange for the Fox Subordinated Note. In addition, as part of the Agreement Re Transfer of LLC Interests, the Company agreed to convert the Class A Members Interest into a Class B Members Interest, as a result of which the Class B Members Interests are held one-third by each of FCN Holding, Saban and the Company. Pursuant to the Asset Assignment Agreement (which survived the Reorganization), the Fox Parties agreed to provide the LLC certain business opportunities (see "Business--The Strategic Alliance with Fox/News Corp."), and the parties further agreed to the following: Programming. The LLC agreed to make programming available at market rates to any program services which were offered to and rejected by the LLC and thereafter operated by the Fox Parties or their affiliates. Distribution Services. The Fox Parties and their affiliates were granted a right of first negotiation and first refusal, with certain exceptions, to provide any of the distribution services which the Fox Parties typically provide and which the LLC decides to obtain from a third party. If the Fox Parties or their affiliates do not accept the offer, the LLC may obtain the services from a third party. In the event of any material change in terms, the LLC must reoffer the opportunity to the Fox Parties. Other Agreements. The Fox Parties also assigned to the LLC most of their other agreements with FCN, including agreements which had granted the Fox Parties the right, for a fee, to provide programming, distribution and merchandising services for FCN (discussed below). The Fox Parties also assigned to the LLC all of their rights in an Administration Agreement (discussed below) between Fox Broadcasting and FCN pursuant to which Fox Broadcasting agreed to provide for a fee certain administrative services to FCN, including network national advertising sales, commercial trafficking and broadcast operations and certain in-house administrative support in the areas of research, promotions, business affairs, legal affairs and accounting. See "Business--Distribution--Fox Kids Network." 78 In addition to assigning to the LLC the agreements referred to above, the Fox Parties agreed to pay to the LLC (i) an amount equal to the aggregate of the distribution fees and commissions received by or credited to the Fox Parties in connection with the merchandising and distribution agreements described under "Other Strategic Relationships," (ii) certain "net" revenues with respect to the existing series properties and (iii) fees and commissions under the Administration Agreement, in each case for the period from June 1, 1995 through December 22, 1995. All of the payments were due on or before July 15, 1996, with interest on the amount in excess of $14.5 million at a rate of 7% per annum. Fox Broadcasting also agreed to contribute to the LLC an amount equal to the difference, if any, between approximately $35.8 million and the amount of actual cash payments made to the LLC pursuant to the Asset Assignment Agreement plus certain dividends paid to a subsidiary of FCN Holding pursuant to the terms of the LLC's Operating Agreement. In September 1996, Fox Broadcasting paid $31 million to satisfy its obligations to the LLC pursuant to these provisions. As part of the formation of the LLC, Saban, the Saban Stockholders, Fox Broadcasting, FCN Holding and one of its subsidiaries entered into a Strategic Stockholders Agreement, which provided, among other things, for restrictions on transfer of the stock held by the parties, certain voting rights between them, as well as the terms of the Reorganization. The parties to the Strategic Stockholders Agreement also agreed to provide Haim Saban and the Saban Stockholders and Fox Broadcasting certain registration rights. On August 1, 1997, the Strategic Stockholders Agreement was amended and restated to add provisions regarding voting between Fox Broadcasting and the former Saban Stockholders. See "Ownership and Control of the Company." As part of the Amended and Restated Strategic Stockholders Agreement, Haim Saban agreed with Fox Broadcasting Sub as follows: if the Company is unable to meet its obligations (i) to pay any dividend under the terms of the Series A Preferred Stock or to redeem the Series A Preferred Stock, (ii) under its lease of 10960 Wilshire Boulevard, Los Angeles, California, or any obligation guaranteed by News Corp., or (iii) under the Funding Agreement, and either News Corp. or NPAL provides funds to the Company, the advance will be treated as a loan, or if Citibank, in its sole discretion as administrative agent under the Amended Credit Facility, determines it is unacceptable to treat the advance as a loan, the advance will be treated as preferred stock. To the extent the advance is treated as a loan and the amount exceeds $50 million, if the advance is not repaid after 18 months (or 12 months for all advances after the third anniversary of the agreement), all or any portion of the advance in excess of $50 million may be converted into shares of Class B Common Stock. If Fox Broadcasting Sub elects to convert any portion of the advance into Class B Common Stock, Haim Saban shall have the right to purchase from Fox Broadcasting Sub up to 50% of the number of shares of Class B Common Stock issued pursuant to the conversion. If instead, the advance is treated as preferred stock, the first $50 million of the advance shall be applied to the issuance of shares of Series B Preferred Stock, and the remainder of the advance shall be applied to the issuance of Series C Convertible Preferred Stock, which is convertible into Class B Common Stock at the election of the holder. Each of the Series B and Series C Preferred Stock will have a liquidation preference equal to its issue price of $100,000 per share. The Series B and Series C Preferred Stock will be entitled to dividends at an annual rate of 11.7% of its liquidation value. If Fox Broadcasting Sub elects to convert the Series C Convertible Preferred Stock into Class B Common Stock, Haim Saban will have the right to purchase up to 50% of the number of shares of Class B Common Stock issued pursuant to the conversion. Notwithstanding the agreements, News Corp. has no obligation to make any advances, and the Company has no obligation to accept any amounts from News Corp. In September 1996, the LLC paid to Fox Broadcasting $10 million, representing the unpaid balance of a fee for providing all uplink, transponder and other facilities necessary to deliver via satellite Fox Kids Network programming for broadcast to the Fox Kids Network Affiliates, and certain other services. Immediately upon receipt of this $10 million payment, Fox Broadcasting made a contribution to the LLC of $10 million in exchange for the additional Class A Members Interest described above. Pursuant to a Stock Ownership Agreement dated December 22, 1995, the LLC was granted an option to purchase, upon the occurrence of certain events, all of the Class B Common Stock held by the Saban 79 Stockholders, and any of their transferees. The option may be exercised as follows: (i) for a period of one year following the death of Haim Saban, if he dies prior to December 22, 2012; (ii) upon delivery of written notice by Fox Broadcasting at any time on or after December 22, 2002, or before December 22, 2012; or (iii) upon receipt by Fox Broadcasting of written notice (which generally cannot be delivered prior to December 22, 2000) from Haim Saban of his desire to cause Fox Broadcasting to purchase all of the shares of Class B Common Stock held by the Saban Stockholders. The LLC paid to the Saban Stockholders an aggregate of $80.1 million for the grant of the option. The purchase price formula under the option is based on the fair market value of the Company. In September 1996 the LLC distributed the Stock Ownership Agreement to FCN Holding, which immediately distributed that agreement to Fox Broadcasting Sub. CERTAIN TRANSACTIONS BETWEEN THE COMPANY AND THE FOX PARTIES In October 1997, the Company reached an agreement in principle with Fox/Liberty Networks, LLC ("Fox/Liberty"), a joint venture between News Corp. and Liberty Media, a wholly owned subsidiary of Tele-Communications, Inc., to sell a majority ownership interest in FiT TV to Fox/Liberty (or an affiliate of Fox/Liberty). The Company acquired FiT TV in September 1997 as part of the IFE Acquisition. In October 1997, the Company entered into an interim agreement with Twentieth Century Fox Film Corp. ("Twentieth Century Fox"), pursuant to which Twentieth Century Fox agreed to distribute the programming library of MTM, one of the assets acquired in the IFE Acquisition. The Company is in discussions to sell certain MTM assets to Twentieth Century Fox. As part of the Reorganization, on July 31, 1997, the Company issued the Fox Subordinated Note to Fox Broadcasting in the principal amount of approximately $104.6 million, which amount was increased to $108.6 million (exclusive of any capitalized interest) on October 28, 1997, and which is to be repaid in May 2008. The parties recently have agreed to restate the Fox Subordinated Note to reflect a change in the interest rate, effective as of the date of issuance. As restated, interest on the original principal amount on the Fox Subordinated Note will accrete quarterly at the rate of 10.427% per annum and interest on the increased principal amount of the Fox Subordinated Note will accrete quarterly at the rate of 10.427% per annum. The Company may prepay the Fox Subordinated Note in whole or in part, subject to the terms of the Amended Credit Facility and the Indentures. On August 29, 1997, in connection with the IFE Acquisition, the Company issued the NAHI Bridge Note to NAHI upon substantially the same terms and conditions as the Fox Subordinated Note, except that the NAHI Bridge Note has a principal amount of $345.5 million. The parties recently have agreed to restate the NAHI Bridge Note to reflect a change in the interest rate, effective as of the date of issuance. As restated, the NAHI Bridge Note will accrete interest at a rate of approximately 10.427% per annum. The Company may repay the NAHI Bridge Note in whole or in part, subject to the terms of the Amended Credit Facility and the Indentures. The payment of principal and interest under the NAHI Bridge Note will be subordinated in right to the obligations of the Company under the Old Credit Facility or the Amended Credit Facility, as applicable, and the Notes. On August 1, 1997, Saban entered into an amendment to the lease for its corporate headquarters at 10960 Wilshire Boulevard in Los Angeles (the original lease dated July 17, 1995 together with the amendment, the "Lease"). Pursuant to a Guaranty of Lease entered into on August 1, 1997 (the "Guaranty"), News Corp. and NPAL have guaranteed certain of Saban's obligations under the Lease. The Guaranty continues until Saban has paid all obligations due under the Lease. Under the Guaranty, News Corp. and NPAL are liable, jointly and severally, for any amounts not paid by Saban. News Corp.'s and NPAL's aggregate liability under the Guaranty is limited to approximately $8.6 million, to be reduced annually over five years on a straight-line basis. In May 1996, Saban entered into an agreement with Fox Video (the "Fox Video Agreement") for the production and distribution of a live-action feature film for the home video market based upon the animated character of Casper (the "Film") which was released by Fox Video in the United States on September 9, 1997. See "Business--Home Video and Telefilms." The distribution term runs through September 8, 2004. Saban has 80 the right and obligation to market, distribute (for no fee) and exploit the Film in all forms of television, non-theatrical and airline markets. Fox Video has the right and obligation to market, manufacture, package, distribute (for no fee) and exploit the Film in home video formats, and will release the Film in major international territories during the next six months. Saban and Fox Video each contributed one-half of the production costs of the Film subject to the rights of both parties to recoup certain of these costs. Saban and Fox Video will share the television net income 55% and 45%, respectively, and the home video net income 45% and 55%, respectively, subject to the participation rights of the Harvey Entertainment Company ("Harvey"), which holds the copyright to Casper. Saban has entered into an agreement in principle with Fox Video for the production and distribution of, and currently is in production on, a second live-action feature film for the home video market based upon Casper (the "Sequel"), which Fox Video presently intends to release in the U.S. during September 1998 and in certain major international territories within six months thereafter. The distribution term runs for seven years following initial U.S. release. Saban has the right and obligation to market, distribute, and exploit the Sequel in all forms of television, non-theatrical and airline markets. Fox Video has the right and obligation to market, manufacture, package, distribute, and exploit the Sequel in home video formats. Distribution fees which Saban is entitled to retain in its Casper rights agreement with Harvey are to be contributed by Fox Video and Saban to the gross income to be distributed between Fox Video and Saban. Saban and Fox Video each will contribute one-half of the production costs of the Sequel subject to the rights of both parties to recoup certain of these costs. Saban and Fox Video will share the combined television, non-theatrical, airline, and home video receipts equally, subject to the participation rights of Harvey. In August 1996, Fox Video and Saban entered into a Home Video Rights Acquisition Agreement pursuant to which Saban granted to Fox Video the exclusive home video rights to distribute English and Spanish language versions throughout the United States and to distribute English language versions throughout Canada of certain of its programs, including Sweet Valley High, all television programs produced for children and owned or controlled by Saban or FCN, all television programs produced or to be produced pursuant to an agreement with Marvel and all television programs which are owned or controlled first by Marvel and subsequently by Saban, the LLC or the Company. The beginning of the term of this agreement varies by type of program, but the term ends as to all programs between seven and nine years from September 11, 1996. Saban is required to make available for release by Fox Video a minimum of six video titles each year, at least two of which will not have been previously released for home video distribution in any of the territories covered by the agreement. In consideration for the grant of the distribution rights, Fox Video has agreed to pay Saban 50% of gross receipts from these home videos, after deduction of certain expenses. In January 1998, Fox Video and Saban concluded a Home Video Rights Acquisition Agreement which was effective as of May 1997 pursuant to which Saban International N.V. granted to Fox Video the exclusive home video rights to distribute local language versions in the "Fox Territories" of certain of Saban's television programs produced for children and owned or controlled by Saban or FCN. The "Fox Territories" are Australia, Denmark, Finland, France, Germany, Italy, Japan, Korea, Mexico, New Zealand, Norway, Spain, Sweden, and the United Kingdom. The term of this agreement began as of May 5, 1997, and ends as to all programs between four and seven years thereafter. Each year during the term, Saban is required to make available for release by Fox Video a minimum of 24 one-hour videocassettes selected from among all children's series not previously licensed in the Fox Territories in home video and which have been broadcast in at least five key Fox Territories. In consideration for the grant of the distribution rights, Fox Video has agreed to pay Saban a $3 million minimum guarantee against 50% of receipts from these home videos, after deduction of the minimum guarantee and certain expenses. Saban and Fox Broadcasting are parties to a Barter Syndication Agreement dated as of January 5, 1996, pursuant to which Saban engaged Fox Broadcasting to provide barter advertising sales for the 1996-1997 and 1997-1998 broadcast seasons for the Saban Kids Network. Fox Broadcasting's services include advertising sales, sales administration, account maintenance, ratings processing, credit and collection, sales data entry and reporting and commercials broadcast standards and practices. In consideration for the services rendered by Fox Broadcasting to Saban, Saban has agreed to pay Fox Broadcasting a barter advertising sales fee of $800,000 for the 1996-1997 broadcast season and $840,000 for the 1997-1998 broadcast season. 81 FCN and Fox Broadcasting are parties to an Administration Agreement dated as of February 7, 1990, pursuant to which Fox Broadcasting agreed to provide the following services to FCN: network national advertising sales and the administration thereof, commercial trafficking and broadcast operations (including program delivery to Fox Kids Network Affiliates) and overhead charges related to Fox Broadcasting in-house administrative support in the areas of research, promotion, business affairs, legal affairs and accounting. FCN agreed to pay to Fox Broadcasting a fee equal to 15% of the net advertising revenue (gross advertising revenue less advertising agency commissions) derived with respect to national commercials, commercial material or other advertising matter included or used in connection with any of the programs exhibited on the Fox Kids Network. For the fiscal years ended June 30, 1994 and 1995, FCN paid to Fox Broadcasting approximately $16.2 million and $21.3 million, respectively, in fees pursuant to this agreement. On December 22, 1995, in connection with the terms of the LLC's Operating Agreement, this agreement, and all rights of Fox Broadcasting to receive management fees on or subsequent to June 1, 1995, were assigned to the LLC by the Fox Parties. Saban is party to an agreement with Fox Family Films, Inc. ("Distributor") for the distribution of Turbo: A Power Rangers Movie, a "PG-rated" sequel to the original Mighty Morphin Power Rangers motion picture (the "Sequel"), which was released theatrically in the United States in Spring 1997 and in home video in late Summer 1997. Under the terms of the agreement, Saban produced and delivered the Sequel to Distributor for worldwide distribution and granted to Distributor all rights necessary to advertise, promote, publicize and distribute the Sequel. Distributor will hold in perpetuity worldwide theatrical, non-theatrical, home video, and television rights in the movie (except for Israel and the territory reserved to Toei Company Ltd.). Saban will hold the copyright to the Sequel as well as certain rights including, without limitation, merchandising, television series, live stage, publication, radio, theme park and touring, music publishing and soundtrack. Commercial tie-in rights will be mutually controlled by Saban and Distributor. Saban will receive 100% of gross receipts after certain distribution fees and expenses are deducted, based upon a formula set forth in the agreement. Saban is party to various program exhibition agreements for the 1996-1997 and 1997-1998 broadcast seasons with FOX Television and one with FoxNet, both subsidiaries of Fox Broadcasting, pursuant to which Saban licenses certain of FOX Television's owned and operated stations and the FoxNet cable television service the right to broadcast certain series. All series are licensed on a barter basis. In January 1997, the Company obtained from FOX Television distribution rights to the New World animation library of 515 half-hour episodes of children's programming, which FOX Television acquired as part of its purchase of New World. The Company is in discussions with FOX Television to acquire the New World animation library. TRANSACTIONS BETWEEN HAIM SABAN, OTHER EXECUTIVE OFFICERS AND SABAN From time to time, Saban has loaned and advanced funds to Haim Saban, the Company's Chairman and Chief Executive Officer. The highest aggregate amounts outstanding from Mr. Saban to Saban were approximately $2.7 million for the fiscal year ended June 30, 1995, and $2.7 million for the fiscal year ended June 30, 1996. In connection with the formation of the LLC, on December 22, 1995, Saban forgave in full all amounts then owing from Haim Saban, aggregating $2,649,000. All of these loans accrued interest at the rate of one percent over City National Bank's prime rate. Haim Saban has in the past loaned and advanced funds to Saban to cover the working capital needs of Saban. The highest aggregate amounts outstanding from Saban to Mr. Saban were approximately $13.3 million for the fiscal year ended June 30, 1994 and $9.0 million for the fiscal year ended June 30, 1995. The balance of these loans was repaid in full in October 1994. All of the loans owing to Mr. Saban accrued interest at the rate of one percent over City National Bank's prime rate. From time to time, Saban has loaned and advanced funds to Shuki Levy, the Company's Executive Vice President. For the past four fiscal years, the highest aggregate amounts outstanding from Mr. Levy to Saban were 82 $1.0 million for the fiscal year ended June 30, 1995, $1.2 million for the fiscal years ended June 30, 1996 and June 30, 1997 and the three months ended September 30, 1997. As of September 30, 1997, the total amount outstanding, including accrued and unpaid interest, was $1.2 million. All of the amounts outstanding under these loans accrued interest at rates ranging from 5% to 9% per annum. Saban currently leases and distributes certain of its properties (e.g., motion pictures, television programs, merchandising and licensing rights) in Israel through Duveen Trading Ltd., a corporation wholly owned by Haim Saban's brother. The term of the agreement extends through December 31, 2000. $500,000 is currently owed to Saban by Duveen Trading Ltd. under this agreement. In connection with Mr. Saban's employment agreement, the LLC agreed to reimburse Mr. Saban for all out-of-pocket costs and expenses for domestic and international travel, including private air charter which may include aircraft owned by Mr. Saban. Saban has entered into a contract with the agency which leases Mr. Saban's airplane to charter from that agency Mr. Saban's or another similar airplane for a minimum of fifty charter hours during a twelve-month period. From July 1, 1996 through June 30, 1997, Saban paid approximately $875,000 for such services. For the three months ended September 30, 1997, Saban paid approximately $57,000 for such services. In September 1994, Saban entered into a music services agreement (the "Music Agreement") with Haim Saban, which agreement was amended in June 1995 and assigned to a corporation wholly owned by Mr. Saban in January 1996. Under the terms of the Music Agreement, all original theme music, underscores, cues and songs for use in all programming produced by Saban will be supplied to Saban through Mr. Saban. Saban is entitled to license third party musical compositions for use in its programming so long as such compositions neither are used as opening or closing themes nor constitute more than 15% of the total musical content of any program or episode, without Mr. Saban's prior written consent. Saban has the royalty-free right to use the compositions in articles of merchandise such as home video units, video games and interactive toys. Saban has been granted the non-exclusive, worldwide and perpetual license to (i) synchronize and perform compositions in theatrical motion pictures and (ii) synchronize compositions in all other forms of programming. Saban creates and owns all right, title and interest in master recordings of compositions for use in Saban's programming, and Saban owns the proceeds derived from all forms of exploitation thereof. In consideration for the provision of the compositions to Saban, Mr. Saban is entitled to receive all publishing income, directly or through Saban, in connection with the exploitation of such compositions. Saban is entitled to reimbursement from Mr. Saban of certain costs associated with the creation of the compositions. For the year ended June 30, 1997, and for the three months ended September 30, 1997, Mr. Saban paid approximately $374,000 and $211,000, respectively, to Saban for reimbursement of costs to Saban. For the eight months ended June 30, 1996, Mr. Saban made no payments for reimbursement of costs to Saban. At June 30, 1997 and September 30, 1997, approximately $211,000 and $85,000, respectively, was owed to Saban by Mr. Saban pursuant to the Music Agreement. 83 DESCRIPTION OF OTHER INDEBTEDNESS Amended Credit Facility. On October 28, 1997, upon consummation of the Offering, the Old Credit Facility was amended to provide for a $710 million facility comprised of a seven-year amortizing term loan and a seven-year reducing revolving credit facility under which FCN Holding, Saban and IFE are borrowers (the "Co-borrowers"). Fox Kids Worldwide, Inc. is not a borrower under the Amended Credit Facility but is a guarantor. Fox Kids Holdings, LLC, a newly created, wholly owned subsidiary of Fox Kids Worldwide, Inc. ("FK Holdings"), holds the equity interests of the Co-Borrowers and also guarantees the obligations under the Amended Credit Facility. The following summary does not purport to be a complete description of the Amended Credit Facility. Borrowings under the Amended Credit Facility are unconditionally guaranteed by each Co-borrower and each subsidiary that is wholly owned, directly or indirectly, by any of the Co-borrowers (subject to certain limitations for foreign subsidiaries). In addition, borrowings under the Amended Credit Facility and the guarantees are secured by the equity interests of FK Holdings, the borrowers and their subsidiaries (subject to certain limitations for foreign and less than wholly owned subsidiaries) and intercompany indebtedness. Under the Amended Credit Facility, subject to certain conditions, the Co- borrowers will be required to make certain mandatory prepayments. The borrowings under the Amended Credit Facility will bear interest at the Company's option at a rate per annum equal to either LIBOR or a base rate plus, in each case, an applicable interest rate margin. In connection with the Amended Credit Facility, the Company pays a commitment fee on the unused and available amounts under the Amended Credit Facility. The Amended Credit Facility contains a number of significant covenants that, among other things, limit the ability of FK Holdings and the Co-borrowers and their respective subsidiaries to incur additional indebtedness, create liens and other encumbrances, make certain payments and investments, make capital expenditures, make distributions to owners and repurchase debt and equity. In addition, the Amended Credit Facility requires the maintenance of certain specified financial and operating covenants, including, without limitation, capital expenditure limitations and ratios of EBITDA to fixed charges, total debt to EBITDA and EBITDA to interest expense. The Amended Credit Facility also contains representations, warranties, covenants, conditions and events of default customary for senior credit facilities of similar size and nature. Fox Subordinated Note. As part of the Reorganization, on July 31, 1997, the Company issued the Fox Subordinated Note to Fox Broadcasting in the principal amount of approximately $104.6 million, which amount was increased to $108.6 million (exclusive of any capitalized interest) on October 28, 1997, and which is to be repaid in May 2008. The parties recently have agreed to restate the Fox Subordinated Note to reflect a change in the interest rate, effective as of the date of issuance. As restated, interest on the original principal amount on the Fox Subordinated Note will accrete quarterly at the rate of 10.427% per annum and interest on the increased principal amount of the Fox Subordinated Note will accrete quarterly at the rate of 10.427% per annum. The Company may prepay the Fox Subordinated Note in whole or in part, subject to the terms of the Amended Credit Facility and the Indentures. The payment of principal and interest under the Fox Subordinated Note will be subordinated in right to the obligations of the Company under the Old Credit Facility or the Amended Credit Facility, as applicable, and the Notes. NAHI Bridge Note. On August 29, 1997, in connection with the IFE Acquisition, the Company issued the NAHI Bridge Note to NAHI upon substantially the same terms and conditions as the Fox Subordinated Note, except that the NAHI Bridge Note has a principal amount of $345.5 million. The parties recently have agreed to restate the NAHI Bridge Note to reflect a change in the interest rate, effective as of the date of issuance. As restated, the NAHI Bridge Note will accrete interest at a rate of approximately 10.427% per annum. The Company may repay the NAHI Bridge Note in whole or in part, subject to the terms of the Amended Credit Facility and the Indentures. The payment of principal and interest under the NAHI Bridge Note will be subordinated in right to the obligations of the Company under the Old Credit Facility or the Amended Credit Facility, as applicable, and the Notes. Approximately $105.8 million (including interest) was outstanding under the NAHI Bridge Note as of December 31, 1997; however, no payments are due until March 2008. 84 DESCRIPTION OF THE NOTES THE TERMS OF THE NOTES ARE IDENTICAL IN ALL MATERIAL RESPECTS TO THE OLD NOTES, EXCEPT FOR CERTAIN TRANSFER RESTRICTIONS AND REGISTRATION RIGHTS RELATING TO THE OLD NOTES. THE DESCRIPTION OF THE NOTES CONTAINED HEREIN ASSUMES THAT ALL OLD NOTES ARE EXCHANGED FOR NOTES IN THE EXCHANGE OFFER. TO THE EXTENT THAT OLD NOTES REMAIN OUTSTANDING AFTER THE CONSUMMATION OF THE EXCHANGE OFFER, THE OLD NOTES AND THE NOTES WILL BE REDEEMED OR REPURCHASED PRO RATA PURSUANT TO THE PROVISIONS CONTAINED IN THE INDENTURES AND DESCRIBED HEREIN. IN ADDITION, AS THE OLD NOTES WERE, AND THE NOTES WILL BE, ISSUED UNDER THE INDENTURES, TO THE EXTENT THAT OLD NOTES REMAIN OUTSTANDING AFTER CONSUMMATION OF THE EXCHANGE OFFER, ANY ACTION DESCRIBED HEREIN AS PERMITTED OR REQUIRED TO BE TAKEN THEREUNDER BY A SPECIFIED PORTION OF THE HOLDERS OF THE NOTES MAY ONLY BE TAKEN BY SUCH PORTION OF THE HOLDERS OF THE OLD NOTES AND THE NOTES, COUNTED AS A SINGLE SERIES. The Old Senior Notes were issued, and the Senior Notes will be issued, under an Indenture dated as of October 28, 1997 (the "Senior Notes Indenture") between the Company and The Bank of New York, as trustee (the "Trustee"). The Old Senior Discount Notes were issued, and the Senior Discount Notes will be issued, under an Indenture dated as of October 28, 1997 (the "Senior Discount Notes Indenture" and, together with the Senior Notes Indenture, the "Indentures"), between the Company and The Bank of New York, as Trustee. The Indentures are not and will not be qualified under the Trust Indenture Act of 1939, as amended (the "Trust Indenture Act"), except upon effectiveness of a registration statement for the Exchange Offer. By their terms, however, the Indentures will incorporate certain provisions of the Trust Indenture Act and, upon consummation of the Exchange Offer, the Indentures will be subject to and governed by the Trust Indenture Act. The following summary of the material provisions of the Indentures and the Notes does not purport to be complete and is subject to, and qualified in its entirety by, reference to the provisions of the Indentures and the Notes, including the definitions of certain terms contained therein and those terms made part of the Indentures by reference to the Trust Indenture Act. A copy of each of the Indentures is attached as an exhibit to the Registration Statement. The definition of certain capitalized terms used in the following summary are set forth below under "--Certain Definitions." References in this section to the Company refer to Fox Kids Worldwide, Inc. without its subsidiaries. GENERAL The Notes will be issued only in registered form without coupons, in denominations of $1,000 and integral multiples thereof. The Company has appointed The Bank of New York to serve as registrar and paying agent under the Indentures at its offices at 101 Barclay Street, New York, New York. No service charge will be made for any transfer, exchange or redemption of Notes, except in certain circumstances for any tax or other governmental charge that may be imposed in connection therewith. RANKING The Notes will be senior unsecured obligations of the Company and will rank senior in right of payment to all future subordinated indebtedness of the Company. Claims of the holders of the Notes will effectively be subordinated to the claims of creditors of the Company's subsidiaries, including the banks under the Bank Facility. MATURITY, INTEREST AND PRINCIPAL OF THE SENIOR NOTES The Senior Notes will be limited to $475,000,000 aggregate principal amount and will mature on November 1, 2007. Cash interest on the Senior Notes will accrue at the rate of 9 1/4% per annum and will be payable semi-annually in arrears on each May 1 and November 1, commencing May 1, 1998, to the holders of record of the Senior Notes at the close of business on the April 15 and October 15 immediately preceding such interest payment date. Interest on the Senior Notes will accrue from the most recent date to which interest has been paid 85 or, if no interest has been paid, from the original date of issuance (the "Issue Date"). Interest will be computed on the basis of a 360-day year comprised of twelve 30-day months. MATURITY, INTEREST AND PRINCIPAL OF THE SENIOR DISCOUNT NOTES The Senior Discount Notes will be limited to $618,670,000 aggregate principal amount at maturity and will mature on November 1, 2007. The Senior Discount Notes will be issued in exchange for the Old Senior Discount Notes which were issued at a discount to their aggregate principal amount at maturity and generated gross proceeds of approximately $375,000,000. Based on the issue price thereof, the yield to maturity of the Senior Discount Notes is 10 1/4% (computed on a semi-annual bond equivalent basis), calculated from October 28, 1997. See "Certain United States Federal Income Tax Considerations." Cash interest will not accrue or be payable on the Senior Discount Notes prior to November 1, 2002. Thereafter, cash interest on the Senior Discount Notes will accrue at a rate of 10 1/4% per annum and will be payable semi- annually in arrears on each May 1 and November 1, commencing on May 1, 2003, to the holders of record of the Senior Discount Notes at the close of business on the April 15 and October 15, respectively, immediately preceding such interest payment date; provided, however, that at any time prior to November 1, 2002, the Company may elect (the "Cash Interest Election") on any interest payment date (the date of such Cash Interest Election, the "Cash Interest Election Date") to commence the accrual of cash interest from and after the Cash Interest Election Date, in which case the principal amount at maturity of each Senior Discount Note will on such interest payment date be reduced to the Accreted Value of such Senior Discount Note as of such interest payment date, and cash interest (accruing at a rate of 10 1/4% per annum from the Cash Interest Election Date) shall be payable with respect to such Senior Discount Note on each interest payment date thereafter. Cash interest will accrue from the most recent interest payment date to which interest has been paid or, if no interest has been paid, from the earlier of November 1, 2002 or the Cash Interest Election Date. Interest will be computed on the basis of a 360-day year of twelve 30-day months. OPTIONAL REDEMPTION Optional Redemption of Senior Notes. The Senior Notes will be redeemable at the option of the Company, in whole or in part, at any time on or after November 1, 2002, at the redemption prices (expressed as percentages of principal amount) set forth below, plus accrued and unpaid interest, if any, to the redemption date, if redeemed during the 12-month period beginning on November 1 of the years indicated below:
REDEMPTION YEAR PRICE ---- ---------- 2002................................... 104.625% 2003................................... 103.083% 2004................................... 101.542% 2005 and thereafter.................... 100.000%
In addition, at any time, or from time to time, on or prior to November 1, 2000, the Company may, at its option, use the net cash proceeds of (a) one or more Public Equity Offerings (as defined below) or (b) sales of Qualified Equity Interests to Strategic Equity Investors resulting in gross cash proceeds to the Company of at least $100,000,000 to redeem, on a pro rata basis, up to an aggregate of 35% of the principal amount of the Senior Notes originally issued, at a redemption price equal to 109.25% of the principal amount thereof plus accrued and unpaid interest, if any, to the redemption date; provided that at least 65% of the originally issued principal amount of Senior Notes remains outstanding immediately after the occurrence of such redemption. "Public Equity Offering" means an underwritten public offering of Qualified Equity Interests of the Company pursuant to a registration statement filed with the Commission in accordance with the Securities Act, which public equity offering results in gross cash proceeds to the Company of not less than $100,000,000. Optional Redemption of Senior Discount Notes. The Senior Discount Notes will be redeemable at the option of the Company, in whole or in part, at any time on or after November 1, 2002, at the redemption prices 86 (expressed as a percentage of principal amount at maturity) set forth below, plus accrued and unpaid interest thereon, if any, to the redemption date, if redeemed during the 12-month period beginning on November 1 of the years indicated below:
REDEMPTION YEAR PRICE ---- ---------- 2002................................... 105.125% 2003................................... 103.417% 2004................................... 101.708% 2005 and thereafter.................... 100.000%
In addition, prior to November 1, 2000, the Company may redeem up to 35% of the originally issued principal amount at maturity of the Senior Discount Notes at a redemption price equal to 110.25% of the Accreted Value of the Senior Discount Notes so redeemed at the redemption date or, if a Cash Interest Election has been made, 110.25% of the principal amount at maturity of the Senior Discount Notes so redeemed, plus accrued and unpaid interest thereon, if any, to the redemption date, with the net cash proceeds of (a) one or more Public Equity Offerings or (b) sales of Qualified Equity Interests of the Company to one or more Strategic Equity Investors resulting in gross cash proceeds to the Company of at least $100,000,000 in the aggregate; provided, however, that at least 65% of the originally issued principal amount at maturity of the Senior Discount Notes would remain outstanding immediately after giving effect to any such redemption. Selection and Notice. In the event that less than all of an issue of Notes are to be redeemed at any time, selection of such Notes for redemption will be made by the applicable Trustee in compliance with the requirements of the principal national securities exchange, if any, on which the Notes are listed or, if the Notes are not then listed on a national securities exchange, on a pro rata basis, by lot or by such method as the Trustee shall deem fair and appropriate; provided, however, that Notes shall only be redeemable in principal amounts of $1,000 or an integral multiple of $1,000, provided, further, that any redemption following one or more Public Equity Offerings or sales of Qualified Equity Interests shall be made on a pro rata basis or as nearly a pro rata basis as practicable (subject to the procedures of DTC). Notice of redemption shall be mailed by or on behalf of the Company by first- class mail at least 30 but not more than 60 days before the redemption date to each holder of Notes to be redeemed at its registered address. In order to effect a redemption with the proceeds of any Public Equity Offering or sales of Qualified Equity Interests to one or more Strategic Equity Investors, the Company shall send a redemption notice to the applicable Trustee not later than 60 days after the consummation of any such Public Equity Offering or sale of Qualified Equity Interests to one or more Strategic Equity Investors, as the case may be. If any Note is to be redeemed in part only, the notice of redemption that relates to such Note shall state the portion of the principal amount thereof to be redeemed. A new Note in a principal amount equal to the unredeemed portion thereof will be issued in the name of the holder thereof upon surrender for cancellation of the original Note. On and after the redemption date, interest will cease to accrue on Notes or portions thereof called for redemption, unless the Company defaults in the payment of the redemption price. SINKING FUND The Notes will not be entitled to the benefit of any mandatory sinking fund. CHANGE OF CONTROL Upon the occurrence of a Change of Control, the Company shall be obligated to make an offer to purchase (a "Change of Control Offer"), on a business day (the "Change of Control Purchase Date") not more than 60 nor less than 30 days following the occurrence of the Change of Control, all of the then outstanding Notes tendered at a purchase price in cash (the "Change of Control Purchase Price") equal to (x) with respect to the Senior Notes, 101% of the principal amount thereof plus accrued and unpaid interest, if any, to the Change of Control Purchase Date and (y) with respect to the Senior Discount Notes, 101% of the Accreted Value on the Change of Control Purchase Date, unless the Change of Control Purchase Date is on or after the earlier to occur of November 1, 2002 and the Cash Interest Election Date, in which case such Change of Control Purchase Price 87 shall be equal to 101% of the aggregate principal amount at maturity thereof, plus accrued and unpaid interest thereon, if any, to the Change of Control Purchase Date. The Company shall be required to purchase all Notes tendered into the Change of Control Offer and not withdrawn. The Change of Control Offer is required to remain open for at least 20 business days and until the close of business on the Change of Control Purchase Date. In order to effect such Change of Control Offer, the Company shall, not later than the 30th day after the Change of Control, mail to each holder of Notes notice of the Change of Control Offer, which notice shall govern the terms of the Change of Control Offer and shall state, among other things, the procedures that holders of Notes must follow to accept the Change of Control Offer. Prior to mailing a notice of a Change of Control Offer, but in any event within 30 days following a Change of Control, the Company shall either permanently repay all outstanding amounts under the Bank Facility and terminate all commitments of the lenders thereunder or offer to permanently repay in full all outstanding amounts under the Bank Facility and permanently repay the Obligations held by each lender who has accepted such offer or obtain the requisite consents, if any, under the Bank Facility to permit the repurchase of the Notes required hereby. The failure to mail notice of the Change of Control Offer when required will nonetheless constitute a Default under the Indentures. If a Change of Control Offer is made, there can be no assurance that the Company will have available funds sufficient to pay the Change of Control Purchase Price for all of the Notes that might be delivered by holders of Notes seeking to accept the Change of Control Offer. The Company shall not be required to make a Change of Control Offer upon a Change of Control if a third party makes the Change of Control Offer in the manner, at the times and otherwise in compliance with the requirements applicable to a Change of Control Offer made by the Company and purchases all Notes validly tendered and not withdrawn under such Change of Control Offer. The definition of "Change of Control" excludes certain transactions by Permitted Holders, including a direct or indirect sale, lease, exchange or other transfer of all or substantially all of the assets of the Company to Permitted Holders. The provisions of the Indentures may not afford Noteholders protection in the event of a highly leveraged transaction, reorganization, restructuring, merger or similar transaction involving the Company if such transaction is not a transaction defined as a "Change of Control." The use of the term "all or substantially all" in provisions of the Indentures such as clause (b) of the definition of "Change of Control" and under "--Consolidation, Mergers, Sale of Assets, Etc." has no clearly established meaning under New York law (which governs the Indentures) and has been the subject of limited judicial interpretation in only a few jurisdictions. Accordingly, there may be a degree of uncertainty in ascertaining whether any particular transaction would involve a disposition of "all or substantially all" of the assets of a person, which uncertainty should be considered by prospective purchasers of Notes. The Company will comply with Rule 14e-1 under the Exchange Act and any other securities laws and regulations thereunder, to the extent such laws or regulations are applicable, in the event that a Change of Control occurs and the Company is required to purchase Notes as described above. CERTAIN COVENANTS The Indentures contain the following covenants, among others; provided however, that if no Default shall have occurred and be continuing, after the Notes are rated by both Moody's Investor Services, Inc. (or its successors) and Standard & Poor's Rating Group (or its successors) in one of its generic rating categories which signifies investment grade (which at the date hereof are the four highest rating categories (within which there are sub-categories indicating relative standing)) the limitations set forth below under the captions "Limitation on Indebtedness," "Limitation on Restricted Payments," "Disposition of Proceeds of Asset Sales," "Limitation on Preferred Stock of Subsidiaries," "Limitation on Transactions with Affiliates," "Limitation on Dividends and other Payment Restrictions Affecting Restricted Subsidiaries," "Limitation on Sale-Leaseback Transactions" and "Limitation on Designation of Unrestricted Subsidiaries" and in clause (c) under "Consolidation, Merger, Sale of Assets, etc." shall no longer be applicable. 88 Limitation on Indebtedness. The Company will not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly, create, incur, issue, assume, guarantee or in any manner become directly or indirectly liable, contingently or otherwise (in each case, to "incur"), for the payment of any Indebtedness (including any Acquired Indebtedness) other than Permitted Indebtedness, unless the ratio of (i) the aggregate consolidated principal amount of Indebtedness of the Company and its Restricted Subsidiaries outstanding as of the most recently available quarterly or annual consolidated balance sheet, after giving pro forma effect to the incurrence of such Indebtedness and any other Indebtedness incurred since such balance sheet date and the receipt and application of the proceeds thereof, to (ii) Consolidated Cash Flow of the Company and its Restricted Subsidiaries for the four full fiscal quarters next preceding the incurrence of such Indebtedness for which consolidated financial statements are available, determined on a pro forma basis as if any such Indebtedness had been incurred and the proceeds thereof had been applied at the beginning of such four fiscal quarters, would be less than 6.0 to 1. Limitation on Restricted Payments. The Company will not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly: (a) declare or pay any dividend or make any other distribution or payment on or in respect of Capital Stock of the Company or any of its Restricted Subsidiaries or make any payment to the direct or indirect holders (in their capacities as such) of Capital Stock of the Company or any of its Restricted Subsidiaries (other than dividends or distributions payable solely in Capital Stock of the Company (other than Redeemable Capital Stock) or in options, warrants or other rights to purchase Capital Stock of the Company (other than Redeemable Capital Stock)) (other than the declaration or payment of dividends or other distributions to the extent declared or paid to the Company or any Restricted Subsidiary), (b) purchase, redeem, defease or otherwise acquire or retire for value any Capital Stock (other than Redeemable Capital Stock) of the Company (or of any Restricted Subsidiary of the Company if such Capital Stock is owned by an Affiliate of the Company) or any options, warrants, or other rights to purchase any such Capital Stock (other than any such securities owned by a Restricted Subsidiary), (c) make any principal payment on, or purchase, defease, repurchase, redeem or otherwise acquire or retire for value, prior to any scheduled maturity, scheduled repayment, scheduled sinking fund payment or other Stated Maturity, any Redeemable Capital Stock or Subordinated Indebtedness of the Company (other than any such Redeemable Capital Stock or Subordinated Indebtedness owned by the Company or a Restricted Subsidiary), (d) make any Investment (other than any Permitted Investment) in any person, or (e) (i) make any principal, interest or other payments on or in respect of Deeply Subordinated Shareholder Loans or (ii) make any principal, interest (other than interest payments after November 1, 2002) or other payments on or in respect of the Existing Subordinated Notes or any Existing Subordinated Note Refinancing Debt (such payments or Investments described in the preceding clauses (a), (b), (c), (d) and (e) are collectively referred to as "Restricted Payments"), unless, at the time of and after giving effect to the proposed Restricted Payment (the amount of any such Restricted Payment, if other than cash, shall be the Fair Market Value of the asset(s) proposed to be transferred by the Company or such Restricted Subsidiary, as the case may be, pursuant to such Restricted Payment), (A) no Default or Event of Default shall have occurred and be continuing, (B) immediately prior to and after giving effect to such Restricted Payment, the Company would be able to incur $1.00 of additional Indebtedness (other than Permitted Indebtedness) and (C) the aggregate amount of all Restricted Payments declared or made from and after the Issue Date would not exceed the sum of: (1) the excess of the aggregate Consolidated Cash Flow of the Company minus the product of 1.5 times the Consolidated Interest Expense of the Company accrued on a cumulative basis during the period beginning on the Issue Date and ending on the last day of the fiscal quarter of the Company immediately preceding the date of such proposed Restricted Payment; 89 (2) the aggregate net cash proceeds received by the Company as capital contributions to the Company after the Issue Date and which constitute shareholders' equity of the Company in accordance with GAAP; (3) the aggregate net cash proceeds received by the Company from the issuance or sale of Capital Stock (excluding Redeemable Capital Stock) of the Company to any person (other than to a Subsidiary of the Company) after the Issue Date; (4) the aggregate net cash proceeds received by the Company from any person (other than a Subsidiary of the Company) upon the exercise of any options, warrants or rights to purchase shares of Capital Stock (other than Redeemable Capital Stock) of the Company after the Issue Date; (5) the aggregate net cash proceeds received after the Issue Date by the Company from any person (other than a Subsidiary of the Company) for debt securities that have been converted or exchanged into or for Capital Stock of the Company (other than Redeemable Capital Stock) (to the extent such debt securities were originally sold for cash) plus the aggregate amount of cash received by the Company (other than from a Subsidiary of the Company) in connection with such conversion or exchange; (6) the aggregate net cash proceeds received after the Issue Date by the Company from the issuance of Deeply Subordinated Shareholder Loans to a Permitted Holder (other than a Subsidiary of the Company); (7) in the case of the disposition or repayment of any Investment constituting a Restricted Payment after the Issue Date, an amount equal to the lesser of the return of capital with respect to such Investment and the initial amount of such Investment, in either case, less the cost of the disposition of such Investment; and (8) so long as the Designation thereof was treated as a Restricted Payment made after the Issue Date, with respect to any Unrestricted Subsidiary that has been redesignated as a Restricted Subsidiary after the Issue Date in accordance with "--Limitation on Designations of Unrestricted Subsidiaries" below, the Fair Market Value of the Company's interest in such Subsidiary calculated in accordance with GAAP, provided that such amount shall not in any case exceed the Designation Amount with respect to such Restricted Subsidiary upon its Designation, minus: the Designation Amount (measured as of the date of Designation) with respect to any Subsidiary of the Company which has been designated as an Unrestricted Subsidiary after the Issue Date in accordance with "-- Limitations on Designations of Unrestricted Subsidiaries" below. For purposes of the preceding clause (C)(4), the value of the aggregate net proceeds received by the Company upon the issuance of Capital Stock upon the exercise of options, warrants or rights will be the net cash proceeds received upon the issuance of such options, warrants or rights plus the incremental amount received by the Company upon the exercise thereof. None of the foregoing provisions will prohibit, so long, in the case of clauses (ii) through (v) and (viii) below, as there is no Default or Event of Default continuing, (i) the payment of any dividend or distribution within 60 days after the date of its declaration, if at the date of declaration such payment would be permitted by the foregoing paragraph; (ii) the redemption, repurchase or other acquisition or retirement of any shares of any class of Capital Stock in exchange for, or out of the net cash proceeds of, a substantially concurrent issue and sale of other shares of Capital Stock (other than Redeemable Capital Stock) of the Company to any person (other than to a Subsidiary of the Company); provided, however, that such net cash proceeds are excluded from clause (C) of the preceding paragraph; (iii) any redemption, repurchase or other acquisition or retirement of Subordinated Indebtedness by exchange for, or out of the net cash proceeds of, a substantially concurrent issue and sale of (1) Capital Stock (other than Redeemable Capital Stock) of the Company to any person (other than to a Subsidiary of the Company); provided, however, that any such net cash proceeds are excluded from clause (C) of the preceding paragraph; or (2) Indebtedness of the Company so long as such Indebtedness is Subordinated Indebtedness which (w) has no Stated Maturity earlier than the 91st day after the Maturity Date, (x) has an Average Life to Stated Maturity greater than the remaining Average Life to Stated Maturity of the Notes, (y) is subordinated to the Notes in the same manner and to the same extent as the Subordinated Indebtedness so 90 purchased, exchanged, redeemed, acquired or retired and (z) if the proceeds of such Indebtedness is to purchase, redeem, acquire or retire all of the Existing Subordinated Notes ("Existing Subordinated Note Refinancing Debt"), such Existing Subordinated Note Refinancing Debt provides for no cash payments of interest prior to November 1, 2002 other than cash payments otherwise permitted by this covenant; (iv) any redemption, repurchase or other acquisition or retirement of Deeply Subordinated Shareholder Loans by exchange for, or out of the net cash proceeds of, a substantially concurrent issue and sale of (1) Capital Stock (other than Redeemable Capital Stock) of the Company to any person (other than a Subsidiary of the Company) or (2) other Deeply Subordinated Shareholder Loans to any Permitted Holder, provided, however, that, in either case, such net cash proceeds are excluded from clause (C) of the preceding paragraph; (v) Investments constituting Restricted Payments made as a result of the receipt of non-cash consideration from any Asset Sale made pursuant to and in compliance with the Indentures; (vi) payments to purchase Capital Stock of the Company from management or employees of the Company or any of its Subsidiaries, or their authorized representatives, upon the happening of an event which provides for payment under any applicable plan, or upon the death, disability or termination of employment of such employees, in aggregate amounts under this clause (vi) not to exceed $8,000,000 in any fiscal year of the Company; (vii) the payment of pro rata dividends to holders of Capital Stock of Restricted Subsidiaries; (viii) the payment of dividends on the Existing Preferred in accordance with its terms as in effect on the Issue Date (or payments in comparable amounts to such dividends and at comparable times in respect of claims by News Corp. or NPAL arising from News Corp. or NPAL having cured or avoided a default by the Company in respect of the Existing Preferred or the Company's Wilshire Boulevard lease; provided amounts contributed to the Company by News Corp. or NPAL for such purpose shall not be included in the calculation of clause (C) above); (ix) the payment of in-kind interest in respect of Deeply Subordinated Shareholder Loans and in respect of Existing Subordinated Notes; and (x) the repayment of the Existing Subordinated Notes contemplated under "Use of Proceeds" in this Prospectus. Any payments made pursuant to clauses (i), (v) and (vi) (to the extent that such dividends are not included in Consolidated Interest Expense) of this paragraph shall, without duplication, be taken into account in calculating the amount of Restricted Payments made from and after the Issue Date. Limitation on Liens. The Company will not, and will not permit any of its Subsidiaries to, create, incur, assume or suffer to exist any Liens of any kind against or upon any of its property or assets, or any proceeds therefrom, unless the Notes are equally and ratably secured (except that Liens securing Subordinated Indebtedness shall not be permitted in any circumstances), except for (a) Liens securing the Notes; (b) Liens securing Indebtedness which is (i) incurred to refinance Indebtedness which has been secured by a Lien permitted under the Indenture and (ii) incurred in accordance with the provisions of the Indenture; provided, however, that such Liens do not extend to or cover any property or assets of the Company or any of its Restricted Subsidiaries not securing the Indebtedness so refinanced; and (c) Permitted Liens. Disposition of Proceeds of Asset Sales. The Company will not, and will not permit any of its Restricted Subsidiaries to, make any Asset Sale unless (a) the Company or such Restricted Subsidiary, as the case may be, receives consideration at the time of such Asset Sale at least equal to the Fair Market Value of the shares or assets sold or otherwise disposed of and (b) at least 75% of such consideration consists of cash or Cash Equivalents or properties or assets that will be used in the business of the Company and its Restricted Subsidiaries provided that the amount of any liabilities (other than Subordinated Indebtedness or Indebtedness of a Restricted Subsidiary that would not constitute Restricted Subsidiary Indebtedness) that are assumed by the transferee of any such assets pursuant to an agreement that unconditionally releases the Company or such Restricted Subsidiary, as the case may be, from further liability shall be treated as cash for purposes of this covenant. The Company or the applicable Restricted Subsidiary, as the case may be, shall, at the Company's option, (i) apply the Net Cash Proceeds from any such Asset Sale within 365 days of the receipt thereof to repay Indebtedness under the Bank Facility and elect to permanently reduce the commitments thereunder by the amount of Indebtedness so repaid, (ii) apply the Net Cash Proceeds from any such Asset Sale within 365 days of the receipt thereof to repay an amount of other Indebtedness (other than Subordinated Indebtedness) of the Company in an amount not exceeding the Other Senior Debt Pro Rata Share and, in such case, elect to permanently reduce the amount of the commitments thereunder by the amount of the Indebtedness so repaid, (iii) apply the Net Cash 91 Proceeds from any such Asset Sale by the Company or a Restricted Subsidiary to repay any Restricted Subsidiary Indebtedness and elect to permanently reduce the commitments thereunder by the amount of the Indebtedness so repaid and/or (iv) apply the Net Cash Proceeds from any Asset Sale by the Company or a Restricted Subsidiary, (x) to repay Indebtedness incurred not more than 90 days before such Asset Sale to purchase, or (y) to the purchase price for an acquisition consummated not more than 90 days before such Asset Sale of, or (z) within 365 days after such Asset Sale to an investment in, properties and assets that replace the properties and assets that were the subject of such Asset Sale or in properties and assets that will be used in the business of the Company and its Restricted Subsidiaries existing on the Issue Date or in businesses reasonably related thereto ("Replacement Assets"). Pending the final application of any such Net Cash Proceeds, the Company or such Restricted Subsidiary may temporarily reduce Indebtedness under a revolving credit facility, if any, or otherwise invest such Net Cash Proceeds in Cash Equivalents. Any Net Cash Proceeds from any Asset Sale that are neither used to repay, and permanently reduce the commitments under, any Restricted Subsidiary Indebtedness as set forth in clause (iii) of the second preceding sentence or invested in Replacement Assets within the 365-day period as set forth in clause (iv) shall constitute "Excess Proceeds." Any Excess Proceeds not used as set forth in clause (i) or (ii) of the third preceding sentence shall constitute "Offer Excess Proceeds" subject to disposition as provided below. When the aggregate amount of Offer Proceeds equals or exceeds $15,000,000, the Company shall make an offer to purchase (an "Asset Sale Offer"), from all holders of the Notes, an aggregate principal amount of Notes equal to such Excess Proceeds, at a price (the "Asset Sale Purchase Price") in cash equal to (x) with respect to the Senior Notes, 100% of the outstanding principal amount thereof plus accrued and unpaid interest, if any, to the purchase date and (y) with respect to the Senior Discount Notes, 100% of the Accreted Value on the purchase date, unless the purchase date is on or after the earlier to occur of November 1, 2002 and the Cash Interest Election Date, in which case such purchase price shall be equal to 100% of the principal amount at maturity thereof, plus accrued and unpaid interest, if any, to the purchase date. To the extent that the aggregate principal amount of Notes tendered pursuant to an Asset Sale Offer is less than the Offer Proceeds, the Company may use such deficiency for any purpose not prohibited hereunder. The Notes shall be purchased by the Company, at the option of the holder thereof, in whole or in part in integral multiples of $1,000 of principal amount, on a date that is not earlier than 30 days and not later than 60 days from the date the notice is given to holders, or such later date as may be necessary for the Company to comply with the requirements under the Exchange Act. If the aggregate purchase price of Notes validly tendered and not withdrawn by holders thereof exceeds the Offer Proceeds, Notes to be purchased will be selected on a pro rata basis, based on the Asset Sale Purchase Price thereof. Upon completion of such Asset Sale Offer, the amount of Excess Proceeds shall be reset to zero. Notwithstanding the two immediately preceding paragraphs, the Company and its Restricted Subsidiaries will be permitted to consummate an Asset Sale without complying with such paragraphs to the extent (i) at least 75% of the consideration of such Asset Sale constitutes Replacement Assets, cash or Cash Equivalents (including obligations deemed to be cash under this covenant) and (ii) such Asset Sale is for Fair Market Value; provided that (i) any consideration constituting (or deemed to constitute) cash or Cash Equivalents received by the Company or any of its Restricted Subsidiaries in connection with any Asset Sale permitted to be consummated under this paragraph shall constitute Net Cash Proceeds subject to the provisions of the two preceding paragraphs and (ii) to the extent such replacement Assets include any Capital Stock of any person, such person becomes a Restricted Subsidiary. The Company will comply with Rule 14e-1 under the Exchange Act and any other securities laws and regulations thereunder, to the extent such laws and regulations are applicable, in the event that an Asset Sale occurs and the Company is required to purchase Notes as described above. Limitation on Preferred Stock of Restricted Subsidiaries. The Company will not permit any Restricted Subsidiary to issue any Preferred Stock other than Preferred Stock issued to the Company or a Restricted Subsidiary. The Company will not sell, transfer or otherwise dispose of Preferred Stock issued by a Restricted Subsidiary of the Company or permit a Restricted Subsidiary to sell, transfer or otherwise dispose of Preferred Stock issued by a Restricted Subsidiary, other than to the Company or a Restricted Subsidiary. Notwithstanding 92 the foregoing, nothing in such covenant will prohibit the ownership of Preferred Stock issued by a person prior to the time (A) such person becomes a Restricted Subsidiary of the Company, (B) such person merges with or into a Restricted Subsidiary of the Company or (C) a Restricted Subsidiary of the Company merges with or into such person; provided, further, that such Preferred Stock was not issued or incurred by such person in anticipation of a transaction contemplated by subclause (A), (B), or (C) above. Limitation on Transactions with Affiliates. The Company will not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly, enter into any transaction or series of related transactions (including, without limitation, the sale, transfer, disposition, purchase, exchange or lease of assets, property or services) with, or for the benefit of, any of its Affiliates (other than Restricted Subsidiaries), except (a) on terms that are no less favorable to the Company or such Restricted Subsidiary, as the case may be, than those which could have been obtained in a comparable transaction at such time from persons who are not Affiliates of the Company, (b) with respect to a transaction or series of related transactions involving aggregate payments or value equal to or greater than $25,000,000, the Company shall have delivered an officer's certificate to the Trustee certifying that such transaction or transactions comply with the preceding clause (a) and that such transaction or transactions have been approved by a majority of the Disinterested Members of the Board of Directors of the Company, and (c) with respect to a transaction or series of related transactions involving aggregate payments or value equal to or greater than $50,000,000 (other than agreements whereby the Company or a Restricted Subsidiary of the Company obtains or grants a license or other rights to syndicated entertainment programs in the ordinary course of business), the Company shall have obtained a written opinion from an Independent Financial Advisor stating that the terms of such transaction or series of transactions are fair, from a financial point of view, to the Company or the Restricted Subsidiary involved, as the case may be. Notwithstanding the foregoing, the restrictions set forth in this covenant shall not apply to (i) transactions with or among the Company and the Restricted Subsidiaries, (ii) customary directors' fees, indemnification and similar arrangements, consulting fees, employee salaries, bonuses or employment agreements, compensation or employee benefit arrangements and incentive arrangements with any officer, director or employee of the Company or any Restricted Subsidiary entered into in the ordinary course of business, (iii) any dividends made in compliance with "--Limitation on Restricted Payments" above, (iv) Permitted Investments, (v) loans and advances to officers, directors and employees of the Company or any Restricted Subsidiary for travel, entertainment, moving and other relocation expenses, in each case made in the ordinary course of business, (vi) transactions pursuant to agreements existing on the date of the Indentures or amendment thereto so long as not disadvantageous to the holders of the Notes, (vii) Deeply Subordinated Shareholder Loans and loans and advances in the same terms as the Existing Subordinated Notes, or (viii) the incurrence of intercompany Indebtedness which constitutes Permitted Indebtedness. Limitation on Dividends and other Payment Restrictions Affecting Restricted Subsidiaries. The Company will not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly, create or otherwise cause or suffer to exist or become effective any consensual encumbrance or restriction on the ability of any Restricted Subsidiary of the Company to (a) pay dividends, in cash or otherwise, or make any other distributions on or in respect of its Capital Stock or any other interest or participation in, or measured by, its profits, (b) pay any Indebtedness owed to the Company or any other Restricted Subsidiary of the Company, (c) make loans or advances to the Company or any other Restricted Subsidiary of the Company, (d) transfer any of its properties or assets to the Company or any other Restricted Subsidiary of the Company or (e) guarantee any Indebtedness of the Company or any other Restricted Subsidiary of the Company, except for such encumbrances or restrictions existing under or by reason of (i) applicable law, (ii) customary non- subletting, non-assignment or other non-transfer provisions of any license, contract or any lease governing a leasehold interest of the Company or any Restricted Subsidiary of the Company, (iii) customary restrictions on transfers of property subject to a Lien permitted under the Indenture, (iv) the Bank Facility, but only if the Bank Facility permits payments to the Company by its Restricted Subsidiaries in amounts sufficient to make interest payments on the Notes unless there is a continuing default under the Bank Facility or the making of any such interest payment would (with or without the giving of notice or passage of time or both) result in a default under the Bank Facility, (v) any 93 agreement or other instrument of a person acquired by the Company or any Restricted Subsidiary of the Company in existence at the time of such acquisition (but not created in contemplation thereof), which encumbrance or restriction is not applicable to any person or any of its Subsidiaries, or the properties or assets of any person or any of its Subsidiaries, other than the person, or the property or assets of the person, so acquired, (vi) an agreement entered into for the sale or disposition of all or substantially all of the Capital Stock or assets of a Restricted Subsidiary or an agreement entered into for the sale of specified assets (in either case, so long as such encumbrance or restriction, by its terms, terminates on the earlier of the termination of such agreement or the consummation of such agreement and so long as such restriction applies only to the Capital Stock or assets to be sold), (vii) any encumbrance or restriction in effect on the Issue Date and (viii) any agreement that amends, extends, refinances, renews or replaces any agreement described in the foregoing clauses, provided that the terms and conditions of any such agreement are not materially less favorable to the holders of the Notes than those under or pursuant to the agreement amended, extended, refinanced, renewed or replaced. Limitation on Designations of Unrestricted Subsidiaries. The Company may designate after the Issue Date any Restricted Subsidiary as an "Unrestricted Subsidiary" under the Indentures (a "Designation") only if: (i) no Default shall have occurred and be continuing at the time of or after giving effect to such Designation; (ii) the Company would be permitted to make an Investment (other than a Permitted Investment) at the time of Designation (assuming the effectiveness of such Designation) pursuant to the "--Limitation on Restricted Payments" above in an amount (the "Designation Amount") equal to the Fair Market Value of the Company's interest in such Subsidiary on such date calculated in accordance with GAAP; and (iii) the Company would be permitted under the Indenture to incur $1.00 of additional Indebtedness (other than Permitted Indebtedness) pursuant to the covenant described under "--Limitation on Indebtedness" at the time of such Designation (assuming the effectiveness of such Designation). In the event of any such Designation, the Company shall be deemed to have made an Investment constituting a Restricted Payment pursuant to the covenant "--Limitation on Restricted Payments" for all purposes of the Indenture in the Designation Amount. Each of the Subsidiaries conducting the businesses identified as assets held for disposition or discontinuance in this Prospectus shall constitute "Unrestricted Subsidiaries" on the Issue Date. The Company shall not, and shall not cause or permit any Restricted Subsidiary to, at any time (x) provide credit support (other than guarantees or pledges under the Bank Facility) for or subject any of its property or assets (other than the Capital Stock of any Unrestricted Subsidiary) to the satisfaction of, any Indebtedness of any Unrestricted Subsidiary (including any undertaking, agreement or instrument evidencing such Indebtedness), (y) be directly or indirectly liable for any Indebtedness of any Unrestricted Subsidiary or (z) be directly or indirectly liable for any Indebtedness which provides that the holder thereof may (upon notice, lapse of time or both) declare a default thereon or cause the payment thereof to be accelerated or payable prior to its final scheduled maturity upon the occurrence of a default with respect to any Indebtedness of any Unrestricted Subsidiary (including any right to take enforcement action against such Unrestricted Subsidiary), except any non-recourse guarantee given solely to support the pledge by the Company or any Restricted Subsidiary of the Capital Stock of an Unrestricted Subsidiary. No Unrestricted Subsidiary shall at any time guarantee or otherwise provide credit support for any obligation of the Company or any Restricted Subsidiary, except as provided in the Bank Facility. All Subsidiaries of Unrestricted Subsidiaries shall automatically be deemed to be Unrestricted Subsidiaries. The Company may revoke any Designation of a Subsidiary as an Unrestricted Subsidiary (a "Revocation") if: (i) no Default shall have occurred and be continuing at the time of and after giving effect to such Revocation; (ii) all Liens and Indebtedness of such Unrestricted Subsidiary outstanding immediately following such Revocation would, if incurred at such time, have been permitted to be incurred for all purposes of the Indenture; and 94 (iii) any transaction (or series of related transactions) between such Subsidiary and any of its Affiliates that occurred on or after the Issue Date while such Subsidiary was an Unrestricted Subsidiary would be permitted by "--Limitation on Transactions with Affiliates" above as if such transaction (or series of related transactions) had occurred at the time of such Revocation. In the event the Company or a Restricted Subsidiary makes any Investment in any person which was not previously a Subsidiary and such person thereby becomes a Subsidiary, such person shall automatically be an Unrestricted Subsidiary and the Company may designate such Subsidiary as a Restricted Subsidiary only if it meets the foregoing requirements of clauses (i) and (ii). All Designations and Revocations must be evidenced by Board Resolutions of the Company delivered to the Trustee certifying compliance with the foregoing provisions. Limitation on Sale-Leaseback Transactions. The Company will not, and will not permit any of its Restricted Subsidiaries to, enter into any Sale- Leaseback Transaction with respect to any property of the Company or any of its Restricted Subsidiaries. Notwithstanding the foregoing, the Company and its Restricted Subsidiaries may enter into Sale-Leaseback Transactions, provided, that (a) the Attributable Value of such Sale-Leaseback Transaction shall be deemed to be Indebtedness of the Company or a Restricted Subsidiary and (b) after giving pro forma effect to any such Sale-Leaseback Transaction and the foregoing clause (a), the Company or a Restricted Subsidiary would be able to incur $1.00 of additional Indebtedness (other than Permitted Indebtedness) pursuant to the covenant described under "Limitation on Indebtedness" above. Reporting Requirements. For so long as the Notes are outstanding, whether or not the Company is subject to Section 13(a) or 15(d) of the Exchange Act, or any successor provision thereto, the Company shall file with the Commission (if permitted by Commission practice and applicable law and regulations) the annual reports, quarterly reports and other documents which the Company would have been required to file with the Commission (if permitted by Commission practice and applicable law and regulations) pursuant to such Section 13(a) or 15(d) or any successor provision thereto if the Company were so subject, such documents to be filed with the Commission on or prior to the respective dates (the "Required Filing Dates") by which the Company would have been required so to file such documents if the Company were so subject. The Company shall also in any event (a) within 15 days after each Required Filing Date (whether or not permitted or required to be filed with the Commission) (i) transmit (or cause to be transmitted) by mail to all holders of Notes, as their names and addresses appear in the Note register, without cost to such Holders, and (ii) file with the Trustee, copies of the annual reports, quarterly reports and other documents which the Company is required to file with the Commission pursuant to the preceding sentence, or, if such filing is not so permitted, information and data of a similar nature, and (b) if, notwithstanding the preceding sentence, filing such documents by the Company with the Commission is not permitted by Commission practice or applicable law or regulations, promptly upon written request supply copies of such documents to any holder of Notes. In addition, for so long as any Notes remain outstanding, the Company will furnish to the holders of Notes and to securities analysts and prospective investors, upon their request, the information required to be delivered pursuant to Rule 144A(d)(4) under the Securities Act, and, to any beneficial holder of Notes, if not obtainable from the Commission, information of the type that would be filed with the Commission pursuant to the foregoing provisions upon the request of any such holder. CONSOLIDATION, MERGER, SALE OF ASSETS, ETC. The Company will not, in any transaction or series of transactions, merge or consolidate with or into, or sell, assign, convey, transfer, lease or otherwise dispose of all or substantially all of its properties and assets as an entirety to, any person or persons, and the Company will not permit any of its Restricted Subsidiaries to enter into any such transaction or series of transactions if such transaction or series of transactions, in the aggregate, would result in a sale, assignment, conveyance, transfer, lease or other disposition of all or substantially all of the properties and assets of the Company or the Company and its Restricted Subsidiaries, taken as a whole, to any other person or persons, unless at the time and after giving effect thereto (a) either (i) if the transaction or transactions is a merger or consolidation, the Company or such Restricted Subsidiary, as the case may be, shall 95 be the surviving person of such merger or consolidation, or (ii) the person formed by such consolidation or into which the Company, or such Restricted Subsidiary, as the case may be, is merged or to which the properties and assets of the Company or such Restricted Subsidiary, as the case may be, substantially as an entirety, are transferred (any such surviving person or transferee person being the "Surviving Entity") shall be a corporation organized and existing under the laws of the United States of America, any state thereof or the District of Columbia and shall expressly assume by supplemental indentures executed and delivered to the Trustee, in form satisfactory to the Trustee, all the obligations of the Company under the Notes and the Indentures and the Registration Rights Agreement, and in each case, the Indentures shall remain in full force and effect; (b) immediately before and immediately after giving effect to such transaction or series of transactions on a pro forma basis (including, without limitation, any Indebtedness incurred or anticipated to be incurred in connection with or in respect of such transaction or series of transactions), no Default or Event of Default shall have occurred and be continuing; and (c) the Company or the Surviving Entity, as the case may be, after giving effect to such transaction or series of transactions on a pro forma basis (including, without limitation, any Indebtedness incurred or anticipated to be incurred in connection with or in respect of such transaction or series of transactions), could incur $1.00 of additional Indebtedness (other than Permitted Indebtedness) under the covenant described under "--Certain Covenants--Limitation on Indebtedness" above. In connection with any consolidation, merger, transfer, lease, assignment or other disposition contemplated hereby, the Company shall deliver, or cause to be delivered, to the Trustee, in form and substance reasonably satisfactory to the Trustee, an officers' certificate and an opinion of counsel, each stating that such consolidation, merger, transfer, lease, assignment or other disposition and the supplemental indenture in respect thereof comply with the requirements under the Indenture. Upon any consolidation or merger, or any sale, assignment, conveyance, transfer, lease or disposition of all or substantially all of the properties and assets of the Company in accordance with the immediately preceding paragraphs, the successor person formed by such consolidation or into which the Company or a Restricted Subsidiary, as the case may be, is merged or the successor person to which such sale, assignment, conveyance, transfer, lease or disposition is made shall succeed to, and be substituted for, and may exercise every right and power of the Company under the Notes, Indentures and/or the Registration Rights Agreement, as the case may be, with the same effect as if such successor had been named as the Company in the Notes, the Indentures and/or in the Registration Rights Agreement, as the case may be. EVENTS OF DEFAULT The following will be "Events of Default" under each Indenture with respect to the Notes issued under such Indenture: (i) default in the payment of the principal of or premium, if any, when due and payable, on any of the Notes (at Stated Maturity, upon optional redemption, required purchase or otherwise); or (ii) default in the payment of an installment of interest on any of the Notes, when due and payable, for 30 days; or (iii) (a) default in the performance, or breach, of any covenant or agreement of the Company under the applicable Indenture (other than a default in the performance or breach of a covenant or agreement which is specifically dealt with in clauses (i) or (ii) or subclauses (b), (c) or (d) of this clause (iii)) and such default or breach shall continue for a period of 45 days after written notice has been given, by certified mail, (x) to the Company by the applicable Trustee or (y) to the Company and the applicable Trustee by the holders of at least 25% in aggregate principal amount of the outstanding Senior Notes or at least 25% in aggregate principal amount at maturity of the Senior Discount Notes, as the case may be; (b) there shall be a default in the performance or breach of the provisions of "Consolidation, Merger and Sale of Assets, etc."; (c) the Company shall have failed to make or consummate an Offer in accordance with the provisions of the applicable Indenture described under "--Certain Covenants--Dispositions of Proceeds of Asset Sales"; or (d) the Company shall have failed to make or consummate a Change of Control Offer in accordance with the provisions of the Indenture described under "Change of Control"; or 96 (iv) default or defaults under one or more agreements, instruments, mortgages, bonds, debentures or other evidences of Indebtedness under which the Company or any Significant Subsidiary of the Company then has outstanding Indebtedness in excess of $20,000,000, individually or in the aggregate, and either (a) such Indebtedness is already due and payable in full or (b) such default or defaults have resulted in the acceleration of the maturity of such Indebtedness; or (v) one or more judgments, orders or decrees of any court or regulatory or administrative agency of competent jurisdiction for the payment of money in excess of $20,000,000 (net of any amounts covered by insurance therefor which the insurance provider has been notified and not challenged coverage) either individually or in the aggregate, shall be entered against the Company or any Significant Subsidiary of the Company or any of their respective properties and shall not be discharged and there shall have been a period of 60 days after the date on which any period for appeal has expired and during which a stay of enforcement of such judgment, order or decree, shall not be in effect; or (vi) the entry of a decree or order by a court having jurisdiction in the premises (A) for relief in respect of the Company or any Significant Subsidiary in an involuntary case or proceeding under the Federal Bankruptcy Code or any other federal, state or foreign bankruptcy, insolvency, reorganization or similar law or (B) adjudging the Company or any Significant Subsidiary bankrupt or insolvent, or seeking reorganization, arrangement, adjustment or composition of or in respect of the Company or any Significant Subsidiary under the Federal Bankruptcy Code or any other similar federal, state or foreign law, or appointing a custodian, receiver, liquidator, assignee, trustee, sequestrator (or other similar official) of the Company or any Significant Subsidiary or of any substantial part of any of their properties, or ordering the winding up or liquidation of any of their affairs, and the continuance of any such decree or order unstayed and in effect for a period of 60 consecutive days; or (vii) the institution by the Company or any Significant Subsidiary of a voluntary case or proceeding under the Federal Bankruptcy Code or any other similar federal, state or foreign law or any other case or proceedings to be adjudicated a bankrupt or insolvent, or the consent by the Company or any Significant Subsidiary to the entry of a decree or order for relief in respect of the Company or any Significant Subsidiary in any involuntary case or proceeding under the Federal Bankruptcy Code or any other similar federal, state or foreign law or to the institution of bankruptcy or insolvency proceedings against the Company or any Significant Subsidiary, or the filing by the Company or any Significant Subsidiary of a petition or answer or consent seeking reorganization or relief under the Federal Bankruptcy Code or any other similar federal, state or foreign law, or the consent by it to the filing of any such petition or to the appointment of or taking possession by a custodian, receiver, liquidator, assignee, trustee or sequestrator (or other similar official) of any of the Company or any Significant Subsidiary or of any substantial part of its property, or the making by it of an assignment for the benefit of creditors, or the admission by it in writing of its inability to pay its debts generally as they become due or the taking of corporate action by the Company or any Significant Subsidiary in furtherance of any such action. If an Event of Default with respect to the Senior Notes or the Senior Discount Notes (other than those covered by clause (vi) or (vii) above with respect to the Company) shall occur and be continuing, the Trustee under the applicable Indenture, by notice to the Company, or the holders of at least 25% in aggregate principal amount of the Senior Notes then outstanding, or the holders of at least 25% in aggregate principal amount at maturity of the Senior Discount Notes then outstanding, as the case may be, by notice to the applicable Trustee and the Company, may declare the Default Amount on all of the outstanding Senior Notes or Senior Discount Notes, as the case may be, due and payable immediately, upon which declaration, the Default Amount shall be immediately due and payable; provided, however, that so long as the Bank Facility shall be in full force and effect, if any acceleration arising from any Event of Default (other than an Event of Default with respect to the Company described in clause (vi) or (vii) of the preceding paragraph) shall not become effective until the earlier to occur of (x) five Business Days following delivery of written notice of such acceleration of the Notes to the agent under the Bank Facility and (y) the acceleration (ipso facto or otherwise) of any Indebtedness under the Bank Facility. If an Event of Default specified in clause (vi) or (vii) above with respect to the Company occurs 97 and is continuing, then the Default Amount on the outstanding Notes shall ipso facto become and be immediately due and payable without any declaration or other act on the part of the Trustee or any holder of Notes. "Default Amount" means, with respect to (i) the Senior Discount Notes prior to the earlier to occur of the Cash Interest Election Date and November 1, 2002, the Accreted Value thereof as of the payment date, (ii) the Senior Notes, the principal amount thereof, and (iii) the Senior Discount Notes after the earlier to occur of the Cash Interest Election Date and November 1, 2002, the principal amount at maturity thereof, plus, in the case of clause (ii) and clause (iii), accrued and unpaid interest thereon, if any, to the payment date. After a declaration of acceleration under the applicable Indenture, but before a judgment or decree for payment of the money due has been obtained by the Trustee thereunder, the holders of a majority in aggregate principal amount of the outstanding Senior Notes, or the holders of a majority in aggregate principal amount at maturity of the outstanding Senior Discount Notes, as the case may be, by written notice to the Company and the applicable Trustee, may rescind such declaration if (a) the Company has paid or deposited with the applicable Trustee a sum sufficient to pay (i) all sums paid or advanced by the applicable Trustee under the applicable Indenture and the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, (ii) all overdue interest on all Senior Notes or Senior Discount Notes, as the case may be, (iii) the principal of and premium, if any, on any Senior Notes or Senior Discount Notes which have become due otherwise than by such declaration of acceleration and interest thereon at the rate borne by such Notes, and (iv) to the extent that payment of such interest is lawful, interest upon overdue interest and overdue principal at the rate borne by such Notes which has become due otherwise than by such declaration of acceleration; (b) the rescission would not conflict with any judgment or decree of a court of competent jurisdiction; and (c) all Events of Default, other than the non-payment of principal of, premium, if any, and interest on the Senior Notes or Senior Discount Notes, as the case may be, that has become due solely by such declaration of acceleration, have been cured or waived. In the event of a declaration of acceleration under the Indentures because of an Event of Default set forth in clause (iv) above has occurred and is continuing as a result of the failure of the Company or any of its Significant Subsidiaries to pay the principal of any Indebtedness upon the final maturity thereof or the acceleration of such maturity, such declaration of acceleration shall be automatically rescinded and annulled if either (i) the failure to pay any such Indebtedness at the final maturity thereof shall have been waived or the acceleration of the maturity thereof shall have been rescinded within 30 days of such maturity or declaration of acceleration, as the case may be, or (ii) such Indebtedness shall have been discharged, or the underlying default has been cured, within 30 days of such maturity or declaration of acceleration, as the case may be. The holders of not less than a majority in aggregate principal amount of the outstanding Senior Notes or the Senior Discount Notes, as the case may be, may on behalf of the holders of all Senior Notes or Senior Discount Notes, as the case may be, waive any past defaults under the applicable Indenture, except a default in the payment of the principal of, premium, if any, or interest on any Note, or in respect of a covenant or provision which under such Indenture cannot be modified or amended without the consent of the holder of each Senior Note or Senior Discount Note outstanding. No holder of any of the Notes has any right to institute any proceeding with respect to an Indenture or any remedy thereunder, unless the holders of at least 25% in aggregate principal amount of the outstanding Senior Notes, or the holders of at least 25% in aggregate principal amount at maturity of the outstanding Senior Discount Notes, as the case may be, have made written request, and offered reasonable indemnity, to the applicable Trustee to institute such proceeding as Trustee under such Notes and the applicable Indenture, the applicable Trustee has failed to institute such proceeding within 15 days after receipt of such notice and the applicable Trustee, within such 15-day period, has not received directions inconsistent with such written request by holders of a majority in aggregate principal amount of the outstanding Senior Notes or, in the case of the Senior Discount Notes, the holders of a majority in aggregate principal amount at maturity. Such limitations do not apply, however, to a suit instituted by a holder of a Note for the enforcement of the payment of the principal of, premium, if any, or interest on such Note on or after the respective due dates expressed in such Note. 98 During the existence of an Event of Default, each Trustee is required to exercise such rights and powers vested in it under the Indenture and use the same degree of care and skill in its exercise thereof as a prudent person would exercise under the circumstances in the conduct of such person's own affairs. Subject to the provisions of an Indenture relating to the duties of the Trustee thereunder, whether or not an Event of Default shall occur and be continuing, such Trustee is not under any obligation to exercise any of its rights or powers under the applicable Indenture at the request or direction of any of the holders unless such holders shall have offered to the applicable Trustee reasonable security or indemnity. Subject to certain provisions concerning the rights of the Trustee, the holders of a majority in aggregate principal amount of the outstanding Senior Notes or, with respect to the Senior Discount Notes, the holders of a majority in aggregate principal amount at maturity, have the right to direct the time, method and place of conducting any proceeding for any remedy available to the Trustee, or exercising any trust or power conferred on the Trustee under the applicable Indenture. If a Default or an Event of Default occurs and is continuing and is known to the Trustee, the Trustee shall mail to each holder of the Notes affected notice of the Default or Event of Default within 30 days after obtaining knowledge thereof. Except in the case of a Default or an Event of Default in payment of principal of, premium, if any, or interest on any Notes, the applicable Trustee may withhold the notice to the holders of such Notes if a committee of its trust officers in good faith determines that withholding the notice is in the interest of the Noteholders. The Company is required to furnish to each Trustee annual and quarterly statements as to the performance by the Company of its obligations under the Indentures and as to any default in such performance. The Company is also required to notify each Trustee within five days of any event which is, or after notice or lapse of time or both would become, an Event of Default. DEFEASANCE OR COVENANT DEFEASANCE OF INDENTURE The Company may, at its option and at any time, terminate its obligations with respect to the outstanding Notes issued under the Indentures ("defeasance") to the extent set forth below are satisfied. Such defeasance means that the Company shall be deemed to have paid and discharged the entire Indebtedness represented by the outstanding Notes issued under such Indenture, except for (i) the rights of holders of outstanding Notes to receive payment in respect of the principal of, premium, if any, and interest on such Notes when such payments are due, (ii) the Company's obligations to issue temporary Notes, register the transfer or exchange of any Notes, replace mutilated, destroyed, lost or stolen Notes and maintain an office or agency for payments in respect of the Notes, (iii) the rights, powers, trusts, duties and immunities of the Trustee, and (iv) the defeasance provisions of such Indentures. In addition, in connection with defeasance, the Company may, at its option and at any time, elect to terminate the obligations of the Company with respect to certain covenants ("covenant defeasance") that are set forth in the Indentures, and are described under "--Certain Covenants" above. Upon the exercise of the covenant of defeasance, the Company shall be released from all obligations with respect to such covenants, and any subsequent failure to comply with such obligations shall not constitute a Default or an Event of Default with respect to the Notes issued under the Indentures. In order to exercise either defeasance or covenant defeasance with respect to an Indenture, (i) the Company must irrevocably deposit with the Trustee, in trust, for the benefit of the holders of the Notes issued thereunder, cash in United States dollars, U.S. Government Obligations (as defined in the Indenture), or a combination thereof, in such amounts as will be sufficient, in the opinion of a nationally recognized firm of independent public accountants, to pay the principal of, premium, if any, and interest on the outstanding Notes to redemption or maturity (except lost, stolen or destroyed Notes which have been replaced or paid); (ii) the Company shall have delivered to the applicable Trustee an opinion of counsel to the effect that the holders of the outstanding Notes will not recognize income, gain or loss for federal income tax purposes as a result of such defeasance or covenant defeasance and will be subject to federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such defeasance or covenant defeasance had not occurred (in the case of defeasance, such opinion must refer to and be based upon a ruling of the Internal Revenue Service or a change in applicable federal income tax laws); (iii) no Default or Event of Default shall have occurred and be continuing on the date of such deposit; (iv) such defeasance or covenant defeasance shall not cause the applicable Trustee to have a conflicting interest with respect to any securities of the Company; (v) such defeasance or covenant 99 defeasance shall not result in a breach or violation of, or constitute a default under, any agreement or instrument to which the Company is a party or by which it is bound; (vi) the Company shall have delivered to the applicable Trustee an opinion of counsel to the effect that after the 91st day following the deposit, the trust funds will not be subject to the effect of any applicable bankruptcy, insolvency, reorganization or similar laws affecting creditors' rights generally; (vii) the Company shall have delivered to the applicable Trustee an officers' certificate stating that the deposit was not made by the Company with the intent of preferring the holders of the Notes over the other creditors of the Company with the intent of hindering, delaying or defrauding creditors of the Company or others; (viii) no event or condition shall exist that would prevent the Company from making payments of the principal of, premium, if any, and interest on the Notes on the date of such deposit or at any time ending on the 91st day after the date of such deposit; and (ix) the Company shall have delivered to the applicable Trustee an officers' certificate and an opinion of counsel, each stating that all conditions precedent under the applicable Indenture to either defeasance or covenant defeasance, as the case may be, have been complied with. SATISFACTION AND DISCHARGE Each Indenture will be discharged and will cease to be of further effect (except as to surviving rights or registration of transfer or exchange of the Notes, as expressly provided for in the Indenture) as to all outstanding Notes issued under such Indenture when (i) either (a) all the Notes theretofore authenticated and delivered thereunder (except lost, stolen or destroyed Notes which have been replaced or repaid and Notes for whose payment money has theretofore been deposited in trust or segregated and held in trust by the Company and thereafter repaid to the Company or discharged from such trust) have been delivered to the Trustee for cancellation or (b) all Notes issued thereunder not theretofore delivered to the applicable Trustee for cancellation (except lost, stolen or destroyed Notes which have been replaced or paid) have become due and payable and the Company has irrevocably deposited or caused to be deposited with the applicable Trustee funds in an amount sufficient to pay and discharge the entire Indebtedness on the Notes not theretofore delivered to the applicable Trustee for cancellation, for principal of, premium, if any, and interest on the Notes to the date of deposit together with irrevocable instructions from the Company directing the applicable Trustee to apply such funds to the payment thereof at maturity or redemption, as the case may be; (ii) the Company has paid all other sums payable under the Indenture by the Company; and (iii) the Company has delivered to the applicable Trustee an officers' certificate and an opinion of counsel stating that all conditions precedent under such Indenture relating to the satisfaction and discharge of the Indenture have been complied with. AMENDMENTS AND WAIVERS From time to time, the Company, when authorized by a resolution of its Board of Directors, and the Trustee under the Indenture may, without the consent of the holders of any outstanding Notes, amend, waive or supplement an Indenture or the Notes issued thereunder for certain specified purposes, including, among other things, curing ambiguities, defects or inconsistencies, qualifying, or maintaining the qualification of, the Indenture under the Trust Indenture Act of 1939, or making any change that does not adversely affect the rights of any holder of Notes issued thereunder. Other amendments and modifications of each Indenture or the Notes issued thereunder may be made by the Company and the applicable Trustee with the consent of the holders of not less than a majority of the aggregate principal amount of the outstanding Senior Notes or, in the case of the Senior Discount Notes, the holders of a majority of the aggregate principal amount at maturity; provided, however, that no such modification or amendment may, without the consent of the holder of each outstanding Note issued under such Indenture affected thereby, (i) reduce the principal amount of, extend the fixed maturity of or alter the redemption provisions of, such Notes, (ii) change the currency in which such Notes or any premium or the interest thereon is payable, (iii) reduce the percentage in principal amount of outstanding Notes issued thereunder that must consent to an amendment, supplement or waiver or consent to take any action under such Indenture or Notes, (iv) impair the right to institute suit for the enforcement of any payment on or with respect to such Notes, (v) waive a default in payment with respect to such Notes, (vi) following the occurrence of a Change of Control or an Asset Sale, amend, change or modify the obligation of the Company to make and consummate a Change of Control Offer or make and consummate the offer with respect to any Asset Sale or modify any of the provisions or definitions with respect thereto, (vii) reduce or change the rate or time for 100 payment of interest on such Notes or, in the case of the Senior Discount Notes, amend or modify the definition of Accreted Value or (viii) modify or change any provision of the Indenture affecting the ranking of such Notes in a manner adverse to the holders of such Notes. THE TRUSTEE Each Indenture provides that, except during the continuance of an Event of Default, the Trustee thereunder will perform only such duties as are specifically set forth in the Indenture. If an Event of Default has occurred and is continuing, the Trustee will exercise such rights and powers vested in it under the Indenture and use the same degree of care and skill in its exercise as a prudent person would exercise under the circumstances in the conduct of such person's own affairs. The Indentures and provisions of the Trust Indenture Act of 1939, as amended, incorporated by reference therein contain limitations on the rights of the Trustee thereunder, should it become a creditor of the Company, to obtain payment of claims in certain cases or to realize on certain property received by it in respect of any such claims, as security or otherwise. The Trustee is permitted to engage in other transactions; provided, however, that if it acquires any conflicting interest (as defined in such Act) it must eliminate such conflict or resign. Such a conflicting interest could occur if the Company were to default on the Senior Notes and not on the Senior Discount Notes or on the Senior Discount Notes and not on the Senior Notes. GOVERNING LAW The Indentures and the Notes are and will be governed by the laws of the State of New York, without regard to the principles of conflicts of law. CERTAIN DEFINITIONS "Accreted Value" means (a) as of any date prior to the Cash Interest Election Date, if any (the "Specified Date"), with respect to each $1,000 principal face amount at maturity of Senior Discount Notes: (i) if the Specified Date is one of the following dates (each a "Semi- Annual Accrual Date"), the amount set forth opposite such date below:
SEMI-ANNUAL ACCRETED ACCRUAL DATE VALUE ------------ --------- Issue Date...................................................... $ 606.14 November 1, 1997................................................ 606.65 May 1, 1998..................................................... 637.74 November 1, 1998................................................ 670.43 May 1, 1999..................................................... 704.79 November 1, 1999................................................ 740.91 May 1, 2000..................................................... 778.88 November 1, 2000................................................ 818.80 May 1, 2001..................................................... 860.76 November 1, 2001................................................ 904.87 May 1, 2002..................................................... 951.25 November 1, 2002................................................ $1,000.00;
(ii) if the Specified Date occurs between two Semi-Annual Accrual Dates, the sum of (a) the Accreted Value for the Semi-Annual Accrual Date immediately preceding the Specified Date and (b) an amount equal to the product of (x) the Accreted Value for the Semi-Annual Accrual Date immediately following the Specified Date less the Accreted Value for the Semi-Annual Accrual Date immediately preceding the Specified Date and (y) a fraction, the numerator of which is the number of days actually elapsed from the immediately preceding Semi-Annual Accrual Date to the Specified Date, using a 360-day year of twelve 30-day months, and the denominator of which is 180; and (iii) if the Specified Date is after November 1, 2002, $1,000; and 101 (b) on and after the Cash Interest Election Date, with respect to each $1,000 principal face amount of Senior Discount Notes, the Accreted Value determined in accordance with the foregoing as of such Cash Interest Election Date (without any further accretion). "Acquired Indebtedness" means Indebtedness of a person (a) assumed in connection with an Asset Acquisition from such person or (b) existing at the time such person becomes a Subsidiary of any other person and not incurred in connection with, or in contemplation of, such Asset Acquisition or such person becoming a Subsidiary. "Affiliate" means, with respect to any specified person, (i) any other person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified person, (ii) any other person that owns, directly or indirectly, 10% or more of such specified person's Capital Stock, (iii) any officer or director of (A) any such specified person, (B) any Subsidiary of such specified person or (C) any person described in clauses (i) or (ii) above or (iv) the spouse of any natural person described in clauses (i), (ii) or (iii) above or any person directly or indirectly controlling or controlled by or under direct or indirect common control with such spouse. "Asset Acquisition" means (a) an Investment by the Company or any Restricted Subsidiary of the Company in any other person pursuant to which such person shall become a Restricted Subsidiary of the Company or any Restricted Subsidiary of the Company, or shall be merged with or into the Company or any Restricted Subsidiary of the Company, or (b) the acquisition by the Company or any Restricted Subsidiary of the Company of the assets of any person which constitute all or substantially all of the assets of such person, any division or line of business of such person or any other properties or assets of such person other than in the ordinary course of business. "Asset Sale" means any sale, issuance, conveyance, transfer, lease or other disposition by the Company or any Restricted Subsidiary of the Company to any person other than the Company or a Restricted Subsidiary of the Company, in one or a series of related transactions for an aggregate consideration of more than $1,000,000, of (a) any Capital Stock of any Subsidiary of the Company; (b) all or substantially all of the properties and assets of any division or line of business of the Company or any Restricted Subsidiary of the Company; or (c) any other properties or assets of the Company or any Restricted Subsidiary of the Company other than in the ordinary course of business including any disposition of obsolete or worn-out assets. For purposes of the covenant "Limitation on Disposition of Proceeds of Asset Sales," the following shall not be deemed an Asset Sale: (i) any sale or other disposition by the Company or a Restricted Subsidiary of the Company of the assets held for disposition or discontinuance of IFE identified in this Prospectus for Fair Market Value or (ii) an Investment of cash not prohibited by the Indentures. For the purposes of this definition, the term "Asset Sale" shall not include any sale, issuance, conveyance, transfer, lease or other disposition of properties or assets that is governed by the provisions described under "-- Consolidation, Merger, Sale of Assets, Etc." "Attributable Value" means, as to any particular lease under which any person is at the time liable other than a Capitalized Lease Obligation, and at any date as of which the amount thereof is to be determined, the total net amount of rent required to be paid by such person under such lease during the remaining term thereof (whether or not such lease is terminable at the option of the lessee prior to the end of such term), including any period for which such lease has been, or may, at the option of the lessor, be extended, discounted from the last date of such term to the date of determination at a rate per annum equal to the discount rate which would be applicable to a Capitalized Lease Obligation with like term in accordance with GAAP. The net amount of rent required to be paid under any lease for any such period shall be the aggregate amount of rent payable by the lessee with respect to such period after excluding amounts required to be paid on account of insurance, taxes, assessments, utility, operating and labor costs and similar charges. "Attributable Value" means, as to a Capitalized Lease Obligation under which any person is at the time liable and at any date as of which the amount thereof is to be determined, the capitalized amount thereof that would appear on the face of a balance sheet of such person in accordance with GAAP. "Average Life to Stated Maturity" means, with respect to any Indebtedness, as at any date of determination, the quotient obtained by dividing (i) the sum of the products of (a) the number of years from such date to the 102 date or dates of each successive scheduled principal payment (including, without limitation, any sinking fund requirements) of such Indebtedness and (b) the amount of each such principal payment by (ii) the sum of all such principal payments. "Bank Facility" means the Second Amended and Restated Credit Agreement dated as of October 28, 1997 among FCN Holding, IFE and Saban, as borrowers, and FK Holdings, as guarantor, and the initial lenders named therein, as initial lenders, and Citicorp USA, Inc., as administrative agent, and Citicorp Securities, Inc. and BankBoston N.A., as co-arrangers, including any initial or successive deferrals, renewals, waivers, extensions, replacements, refinancings (in whole or part) or refundings thereof, or any amendments, modifications or supplements, thereto and including any related notes, guarantees, security agreements, pledge agreements, mortgages and other collateral documents executed in connection therewith. "Board of Directors" means the board of directors of a company or its equivalent, including managers of a limited liability company (or members of a member managed limited liability company), general partners of a partnership or trustees of a business trust, or any duly authorized committee thereof. "Capital Stock" means, with respect to any person, any and all shares, interests, participations, rights in or other equivalents (however designated) of such person's capital stock or equity participations, and any rights (other than debt securities convertible into capital stock), warrants or options exchangeable for or convertible into such capital stock and, including, without limitation, with respect to partnerships, limited liability companies or business trusts, ownership interests (whether general or limited) and any other interest or participation that confers on a Person the right to receive a share of the profits and losses of, or distributions of assets of, such partnerships, limited liability companies or business trusts. "Capitalized Lease Obligation" means any obligation under a lease of (or other agreement conveying the right to use) any property (whether real, personal or mixed) that is required to be classified and accounted for as a capital lease obligation under GAAP, and, for the purpose of the Indentures, the amount of such obligation at any date shall be the capitalized amount thereof at such date, determined in accordance with GAAP. "Cash Equivalents" means, at any time, (i) any evidence of Indebtedness with a maturity of 365 days or less issued or directly and fully guaranteed or insured by the United States of America or any agency or instrumentality thereof (provided that the full faith and credit of the United States of America is pledged in support thereof); (ii) certificates of deposit or acceptances with a maturity of 365 days or less of any financial institution that is a member of the Federal Reserve System having combined capital and surplus and undivided profits of not less than $500,000,000, whose debt is rated at least A-1 by S&P or at least P-1 by Moody's or at least an equivalent rating category of another nationally recognized rating agency; (iii) commercial paper with a maturity of 365 days or less issued by a corporation that is not an Affiliate of the Company organized under the laws of any state of the United States or the District of Columbia and rated at least A-1 by S&P or at least P-1 by Moody's or at least an equivalent rating category of another nationally recognized securities rating agency; (iv) repurchase agreements and reverse repurchase agreements relating to marketable direct obligations issued or unconditionally guaranteed by the government of the United States of America or issued by any agency thereof and backed by the full faith and credit of the United States of America, in each case maturing within 365 days from the date of acquisition; and (v) money market instruments which are principally invested in Cash Equivalents referred to in the preceding clauses (i) through (iv). "Change of Control" means the occurrence of any of the following events: (a)(i) the Permitted Holders cease to own at least 50% of the total Voting Stock of the Company or (ii) The News Corporation Limited, the Murdoch Family or any of their respective Affiliates cease to own at least 30% of the total Voting Stock of the Company; (b) the Company consolidates with, or merges with or into, another person or sells, assigns, conveys, transfers, leases or otherwise disposes of all or substantially all of its assets to any person, or any person consolidates with, or merges with or into, the Company, in any such event pursuant to a transaction in which the outstanding Voting Stock of the Company is converted into or exchanged for cash, securities or other property, other than any such transaction where (i) the outstanding Voting Stock of the Company is converted into or exchanged for Voting Stock (other than Redeemable Capital Stock) of the surviving or transferee corporation 103 and immediately after such transaction (i) the Permitted Holders own at least 50% of the total Voting Stock of the surviving or transferee corporation and (ii) The News Corporation Limited, the Murdoch Family or any of their respective Affiliates own at least 30% of the total Voting Stock of the surviving or transferee corporation; (c) during any consecutive two-year period, individuals who at the beginning of such period constituted the Board of Directors of the Company (together with any new directors whose election by such Board of Directors or whose nomination for election by the stockholders of the Company was approved by a vote of 66 2/3% of the directors then still in office who were either directors at the beginning of such period or whose election or nomination for election was previously so approved) cease for any reason to constitute at least 50% of the Board of Directors of the Company then in office; or (d) the Company is liquidated or dissolved or adopts a plan of liquidation or any order, judgment or decree shall be entered against the Company decreeing the dissolution or splitup of the Company and such order shall remain undischarged or unstayed for a period in excess of 60 days. "Consolidated Cash Flow" means, with respect to any person for any period, (i) the sum of, without duplication, the amounts for such period, taken as a single accounting period, of (a) Consolidated Net Income, (b) Consolidated Non-cash Charges, (c) Consolidated Interest Expense, (d) Consolidated Income Tax Expense (other than income tax expense (either positive or negative) attributable to extraordinary and nonrecurring gains or losses), (e) an amount equal to any extraordinary and nonrecurring losses (to the extent such losses were deducted in computing Consolidated Net Income), less (ii) non-cash items increasing Consolidated Net Income; provided, however, that if, during such period, such person or any of its Restricted Subsidiaries shall have made any Asset Sales or Asset Acquisitions, Consolidated Cash Flow for such person and its Restricted Subsidiaries for such period shall be adjusted to give pro forma effect to the Consolidated Cash Flow directly attributable to the assets which are the subject of such Asset Sales or Asset Acquisitions during such period. "Consolidated Income Tax Expense" means, with respect to any person for any period, the provision for federal, state, local and foreign income taxes of such person and its Restricted Subsidiaries for such period as determined on a consolidated basis in accordance with GAAP. "Consolidated Interest Expense" means, with respect to any person for any period, without duplication, the sum of (i) the interest expense of such person and its Restricted Subsidiaries for such period as determined on a consolidated basis in accordance with GAAP, including, without limitation, (a) any amortization of debt discount, (b) the net cost under Interest Rate Protection Obligations (including any amortization of discounts), (c) the interest portion of any deferred payment obligation, excluding accretion recorded based upon liabilities arising from purchase accounting adjustments from the acquisition of IFE, (d) all commissions, discounts and other fees and charges owed with respect to letters of credit, bankers' acceptance financing or similar facilities and (e) all capitalized and accrued interest and (ii) the interest component of Capitalized Lease Obligations paid, accrued and/or scheduled to be paid or accrued by such person and its Restricted Subsidiaries during such period and (iii) the aggregate amount of dividends and other distributions paid or accrued during such period in respect of Redeemable Capital Stock (other than payments made in respect of the redemption of such Redeemable Capital Stock (other than accrued and unpaid dividends thereon)) of such person and its Restricted Subsidiaries on a consolidated basis, as determined on a consolidated basis in accordance with GAAP. In no event shall Consolidated Interest Expense include interest expense associated with Deeply Subordinated Shareholder Loans. "Consolidated Net Income" means, with respect to any person for any period, the consolidated net income (or loss) of such person and its Restricted Subsidiaries for such period as determined in accordance with GAAP, adjusted, to the extent included in calculating such net income, by excluding, without duplication, (i) all extraordinary gains or losses (net of fees and expenses relating to the transaction giving rise thereto), (ii) the portion of net income of such person and its Restricted Subsidiaries derived from or in respect of Investments in persons other than Restricted Subsidiaries except to the extent that cash dividends or distributions have not actually been received by such person or one of its Restricted Subsidiaries, (iii) net income (or loss) of any person combined with such person or one of its Restricted Subsidiaries on a "pooling of interests" basis attributable to any period prior to the date of combination, (iv) gains or losses in respect of any Asset Sales by such person or one of its Restricted Subsidiaries (net of fees and expenses relating to the transaction giving rise thereto), on an after-tax basis, (v) the net income of any Restricted Subsidiary of such person to the extent that 104 the declaration of dividends or similar distributions by that Restricted Subsidiary of that income is not at the time permitted, directly or indirectly, by operation of the terms of its charter or any agreement, instrument, judgment, decree, order, statute, rule or governmental regulations applicable to that Restricted Subsidiary or its stockholders and (vi) any gain or loss realized as a result of the cumulative effect of a change in accounting principles. "Consolidated Net Tangible Assets" of any person means, as of any date, (a) all amounts that would be shown as assets on a consolidated balance sheet of such person and its Restricted Subsidiaries prepared in accordance with GAAP, less (b) the amount thereof constituting goodwill and other intangible assets as calculated in accordance with GAAP. "Consolidated Non-cash Charges" means, with respect to any person for any period, the aggregate depreciation, amortization (excluding amortization of programming costs) and other non-cash expenses of such person and its Restricted Subsidiaries reducing Consolidated Net Income of such person and its Restricted Subsidiaries for such period, determined on a consolidated basis in accordance with GAAP (excluding any such charges constituting an extraordinary item or loss or any such charge which requires an accrual of or a reserve for cash charges for any future period). "control" when used with respect to any specified person means the power to direct the management and policies of such person, directly or indirectly, whether through ownership of voting securities, by contract or otherwise; and the terms "controlling" and "controlled" have meanings correlative to the foregoing. "Currency Agreement" means any foreign exchange contract, currency swap agreement or other similar agreement or arrangement designed to protect the Company or any of its Restricted Subsidiaries against fluctuations in currency values. "Deeply Subordinated Shareholder Loans" means any Indebtedness of the Company for money borrowed from and held by either (x) a Permitted Holder or (y) another person whose obligations have been guaranteed by a Permitted Holder, provided that, except to the extent expressly permitted by the covenant "Limitation on Restricted Payments," such Indebtedness of the Company (i) has been expressly subordinated in right of payment as to all payments of interest and principal to the Notes, (ii) provides for no payments of interest (other than payments in-kind) or principal prior to the earlier of (a) the end of the sixth month after the final maturity of the Notes and (b) the payment in full cash of all Notes (or due provision therefor which results in the discharge of all obligations under the Indenture); provided, further, that the terms of any such Indebtedness shall be evidenced by a note in the form annexed to the Indenture and the Company shall have delivered the specified Opinions of Counsel as to the validity and enforceability of the subordination terms thereof. "Default" means any event that is, or after notice or passage of time or both would be, an Event of Default. "Disinterested Member of the Board of Directors of the Company" means, with respect to any transaction or series of transactions, a member of the Board of Directors of the Company other than a member who has any material direct or indirect financial interest in or with respect to such transaction or series of transactions or who is an officer, director or an employee of any person who has any direct or indirect financial interest in or with respect to such transaction or series of transactions (other than the Company or a Restricted Subsidiary of the Company). "Entertainment/Programming Business" means a business engaged primarily in the ownership, operation, acquisition, development, production, distribution or syndication of general entertainment or children's programming including, without limitation, any business engaged in by the Company and its Restricted Subsidiaries on the Issue Date. "Event of Default" has the meaning set forth under "Events of Default" herein. "Exchange Act" means the Securities Exchange Act of 1934, as amended. 105 "Existing Preferred" means the Series A Preferred Stock outstanding on the Issue Date. "Existing Subordinated Notes" means (i) the Subordinated Note of the Company issued to News America Holdings Incorporated in the principal amount (excluding accreted interest) of approximately $345.5 million outstanding on the Issue Date (before giving effect to the use of proceeds from the Offering and the Flextech Transaction) and (ii) the Subordinated Note of the Company issued to Fox Broadcasting Company in the principal amount (excluding accreted interest) of approximately $108.6 million outstanding on the Issue Date (before giving effect to the use of proceeds from the Offering). Notwithstanding anything herein to the contrary, the Company may amend the term of the Existing Subordinated Notes to make them Deeply Subordinated Shareholder Loans. "Fair Market Value" means, with respect to any asset, the price which could be negotiated in an arm's-length free market transaction, for cash, between a willing seller and a willing buyer, neither of which is under pressure or compulsion to complete the transaction; provided, however, that, except with respect to any Asset Sale which involves an asset or assets constituting less than $25,000,000, the determination of the Fair Market Value of any asset or assets shall be approved by the Board of Directors of the Company, acting in good faith and shall be evidenced by resolutions of the Board of Directors of the Company delivered to the Trustee. "GAAP" means generally accepted accounting principles set forth in the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board or in such other statements by such other entity as may be approved by a significant segment of the accounting profession of the United States of America, which are applicable at the date of the Indenture. "guarantee" means, as applied to any obligation, (i) a guarantee (other than by endorsement of negotiable instruments for collection in the ordinary course of business), direct or indirect, in any manner, of any part or all of such obligation and (ii) an agreement, direct or indirect, contingent or otherwise, the practical effect of which is to assure in any way the payment or performance (or payment of damages in the event of nonperformance) of all or any part of such obligation, including, without limiting the foregoing, the payment of amounts available to be drawn down under letters of credit of another person. "Indebtedness" means, with respect to any person, without duplication, (a) all liabilities of such person for borrowed money or for the deferred purchase price of property or services, excluding any trade payables and other accrued current liabilities and liabilities for entertainment programming, participations or residuals incurred in the ordinary course of business, but including, without limitation, all obligations, contingent or otherwise, of such person in connection with any letters of credit, banker's acceptance or other similar credit transaction, (b) all obligations of such person evidenced by bonds, notes, debentures or other similar instruments, (c) all indebtedness created or arising under any conditional sale or other title retention agreement with respect to property acquired by such person (even if the rights and remedies of the seller or lender under such agreement in the event of default are limited to repossession or sale of such property), but excluding trade accounts payable arising in the ordinary course of business, (d) all Capitalized Lease Obligations of such person, (e) all Indebtedness referred to in the preceding clauses of other persons and all dividends of other persons, the payment of which is secured by (or for which the holder of such Indebtedness has an existing right, contingent or otherwise, to be secured by) any Lien upon property (including, without limitation, accounts and contract rights) owned by such person, even though such person has not assumed or become liable for the payment of such Indebtedness, (f) all guarantees of Indebtedness referred to in this definition by such person, (g) all Redeemable Capital Stock of such person valued at the greater of its voluntary or involuntary maximum fixed repurchase price plus accrued dividends, (h) all obligations under or in respect of Interest Rate Protection Obligations of such person, and (i) any amendment, supplement, modification, deferral, renewal, extension, refinancing or refunding of any liability of the types referred to in clauses (a) through (h) above. For purposes hereof, the "maximum fixed repurchase price" of any Redeemable Capital Stock which does not have a fixed repurchase price shall be calculated in accordance with the terms of such Redeemable Capital Stock as if such Redeemable Capital Stock were purchased on any date on which Indebtedness shall be required to be determined pursuant to 106 the Indenture, and if such price is based upon, or measured by, the fair market value of such Redeemable Capital Stock, such fair market value shall be approved in good faith by the board of directors of the issuer of such Redeemable Capital Stock. In the case of Indebtedness of other persons, the payment of which is secured by a Lien on property owned by a person as referred to in clause (e) above, the amount of the Indebtedness of such person attributable to such Lien at any date shall be the lesser of the Fair Market Value at such date of any asset subject to such Lien and the amount of the Indebtedness secured. In no event shall "Indebtedness" include (i) Deeply Subordinated Shareholder Loans so long as they are issued to and held by a Permitted Holder or (ii) the Existing Preferred to the extent the terms thereof are as in effect on the Issue Date. "Independent Financial Advisor" means a nationally recognized accounting, appraisal or investment banking firm (i) which does not, and whose directors, officers and employees or Affiliates do not have, a direct or indirect financial interest in the Company and (ii) which, in the judgment of the Board of Directors of the Company, is otherwise independent and qualified to perform the task for which it is to be engaged. "Interest Rate Protection Agreement" means, with respect to any person, any arrangement with any other person whereby, directly or indirectly, such person is entitled to receive from time to time periodic payments calculated by applying either a floating or a fixed rate of interest on a stated notional amount in exchange for periodic payments made by such person calculated by applying a fixed or a floating rate of interest on the same notional amount and shall include, without limitation, interest rate swaps, caps, floors, collars and similar agreements. "Interest Rate Protection Obligations" means the obligations of any person pursuant to any Interest Rate Protection Agreements. "Investment" means, with respect to any person, any direct or indirect loan or other extension of credit (including, without limitation, a guarantee) or capital contribution to (by means of any transfer of cash or other property to others or any payment for property or services for the account or use of others), or any purchase or acquisition by such person of any Capital Stock, bonds, notes, debentures or other securities or evidences of Indebtedness issued by, any other person. "Lien" means any mortgage, charge, pledge, lien (statutory or other), security interest, hypothecation, assignment for security, claim, or preference or priority or other encumbrance upon or with respect to any property of any kind. A person shall be deemed to own subject to a Lien any property which such person has acquired or holds subject to the interest of a vendor or lessor under any conditional sale agreement, capital lease or other title retention agreement. "Maturity Date" means November 1, 2007. "Murdoch Family" means one or more of (a) K. Rupert Murdoch, his wife, parents, children or more remote issue, or brothers or sisters or children or more remote issue of a brother or sister, (b) any person directly or indirectly controlled by one or more of the persons referred to in clause (a) of this definition or (c) a trust in which the majority of the trustees are persons referred to in clause (a) or (b) of this definition or can be removed or replaced by one or more of the persons referred to in clause (a) or (b) of this definition. "Net Cash Proceeds" means, with respect to any Asset Sale, the proceeds thereof in the form of cash or Cash Equivalents including payments in respect of deferred payment obligations when received in the form of cash or Cash Equivalents (except to the extent that such obligations are financed or sold with recourse to the Company or any Restricted Subsidiary of the Company) net of (i) brokerage commissions and other fees and expenses (including, without limitation, fees and expenses of legal counsel and investment bankers) related to such Asset Sale, (ii) provisions for all taxes payable as a result of such Asset Sale and relocation costs, (iii) amounts required to be paid to any person (other than the Company or any Restricted Subsidiary of the Company) owning a beneficial interest in or a Lien upon the assets subject to the Asset Sale, (iv) payments made to retire Indebtedness where payment of such Indebtedness is secured by the assets or properties the subject of 107 such Asset Sale, and (v) appropriate amounts to be provided by the Company or any Restricted Subsidiary of the Company, as the case may be, as a reserve required in accordance with GAAP against any liabilities associated with such Asset Sale and retained by the Company or any Restricted Subsidiary of the Company, as the case may be, after such Asset Sale, including, without limitation, pension and other post-employment benefit liabilities, liabilities related to environmental matters and liabilities under any indemnification obligations associated with such Asset Sale, all as reflected in an officers' certificate delivered to the Trustee. "Offer" has the meaning set forth in the definition of "Offer to Purchase" below. "Offer to Purchase" means a written offer (the "Offer") sent by or on behalf of the Company by first-class mail, postage prepaid, to each holder at his address appearing in the register for the Notes on the date of the Offer offering to purchase up to the principal amount or Accreted Value of Notes specified in such Offer at the purchase price specified in such Offer (as determined pursuant to the applicable Indenture). Unless otherwise provided for in the Indentures or otherwise required by applicable law, the Offer shall specify an expiration date (the "Expiration Date") of the Offer to Purchase, which shall be not less than 20 Business Days nor more than 60 days after the date of such Offer, and a settlement date (the "Purchase Date") for purchase of Notes to occur no later than five Business Days after the Expiration Date. The Company shall notify the applicable Trustee at least 15 Business Days (or such shorter period as is acceptable to the applicable Trustee) prior to the mailing of the Offer of the Company's obligation to make an Offer to Purchase, and the Offer shall be mailed by the Company or, at the Company's request, by the Trustee in the name and at the expense of the Company. The Offer shall contain all the information required by applicable law to be included therein. The Offer shall also contain information concerning the business of the Company and its Subsidiaries which the Company in good faith believes will enable such Holders to make an informed decision with respect to the Offer to Purchase (which at a minimum will include (i) the most recent annual and quarterly financial statements and "Management's Discussion and Analysis of Financial Condition and Results of Operations" contained in the document required to be filed with the Trustee pursuant to the Indenture (which requirements may be satisfied by delivery of such documents together with the Offer), (ii) a description of material developments in the Company's business subsequent to the date of the latest of such financial statements referred to in clause (i) (including a description of the events requiring the Company to make the Offer to Purchase), (iii) if applicable, appropriate pro forma financial information concerning the Offer to Purchase and the events requiring the Company to make the Offer to Purchase and (iv) any other information required by applicable law to be included therein). The Offer shall contain all instructions and materials necessary to enable such Holders to tender Notes pursuant to the Offer to Purchase. The Offer shall also state: (1) the Section of the Indenture pursuant to which the Offer to Purchase is being made; (2) the Expiration Date and the Purchase Date; (3) the aggregate principal amount of the outstanding Notes offered to be purchased by the Company pursuant to the Offer to Purchase (including, if less than 100%, the manner by which such amount has been determined pursuant to the Section of the Indenture requiring the Offer to Purchase) (the "Purchase Amount"); (4) in the case of the Senior Notes, the purchase price to be paid by the Company for each $1,000 aggregate principal amount of Notes accepted for payment (as specified pursuant to the Senior Notes Indenture) (the "Purchase Price" with respect to the Senior Notes) and (b) in the case of the Senior Discount Notes, the purchase price to be paid by the Company for each $1,000 of Accreted Value (if the Purchase Date is prior to the earlier of November 1, 2002 or the Cash Interest Election Date) or $1,000 aggregate principal amount at maturity (if the Purchase Date is on or after such earlier date) of Notes accepted for payment (as specified pursuant to the Senior Discount Notes Indenture) (the "Purchase Price" with respect to the Senior Discount Notes); (5) that the holder may tender all or any portion of the Notes registered in the name of such holder and that any portion of a Note tendered must be tendered in an integral multiple of $1,000 principal face amount; 108 (6) the place or places where Notes are to be surrendered for tender pursuant to the Offer to Purchase; (7) that interest on any Note not tendered or tendered but not purchased by the Company pursuant to the Offer to Purchase will continue to accrue; (8) that on the Purchase Date the Purchase Price will become due and payable upon each Note being accepted for payment pursuant to the Offer to Purchase and that interest thereon shall cease to accrue on and after the Purchase Date; (9) that each holder electing to tender all or any portion of a Note pursuant to the Offer to Purchase will be required to surrender such Note at the place or places specified in the Offer prior to the close of business on the Expiration Date (such Note being, if the Company or the Trustee so requires, duly endorsed by, or accompanied by a written instrument of transfer in form satisfactory to the Company and the Trustee duly executed by, the holder thereof or his attorney duly authorized in writing); (10) that holders will be entitled to withdraw all or any portion of Notes tendered if the Company (or its paying agent) receives, not later than the close of business on the fifth Business Day next preceding the Expiration Date, a telegram, telex, facsimile transmission or letter setting forth the name of the holder, the principal amount of the Note the holder tendered, the certificate number of the Note the holder tendered and a statement that such holder is withdrawing all or a portion of his tender; (11) that (a) if Notes in an aggregate principal amount less than or equal to the Purchase Amount are duly tendered and not withdrawn pursuant to the Offer to Purchase, the Company shall purchase all such Notes and (b) if Notes in an aggregate principal amount in excess of the Purchase Amount are tendered and not withdrawn pursuant to the Offer to Purchase, the Company shall purchase Notes having an aggregate principal amount equal to the Purchase Amount on a pro rata basis (with such adjustments as may be deemed appropriate so that only Notes in denominations of $1,000 principal amount at maturity or integral multiples thereof shall be purchased); and (12) that in the case of any holder whose Note is purchased only in part, the Company shall execute and the Trustee shall authenticate and deliver to the holder of such Note without service charge, a new Note or Notes, of any authorized denomination as requested by such holder, in an aggregate principal amount equal to and in exchange for the unpurchased portion of the Note so tendered. An Offer to Purchase shall be governed by and effected in accordance with the provisions pertaining to the type of Offer to which it relates. References above to principal amount shall mean and refer to principal amount at maturity with respect to the Senior Discount Notes, unless the context otherwise requires. "Other Senior Debt Pro Rata Share" means under an Indenture the amount of the applicable Excess Proceeds obtained by multiplying the amount of such Excess Proceeds by a fraction, (i) the numerator of which is the aggregate accreted value and/or principal amount, as the case may be, of all Indebtedness (other than (x) the Notes issued thereunder and (y) Subordinated Indebtedness) of the Company outstanding at the time of the applicable Asset Sale with respect to which the Company is required to use Exceed Proceeds to repay or make an offer to purchase or repay and (ii) the denominator of which is the sum of (a) the aggregate principal amount of all Notes issued thereunder that are outstanding at the time of the offer to purchase or repay with respect to the applicable Asset Sale and (b) the aggregate principal amount or the aggregate accreted value, as the case may be, of all other Indebtedness (other than Subordinated Indebtedness) of the Company outstanding at the time of the applicable Asset Sale Offer with respect to which the Company is required to use the applicable Excess Proceeds to offer to repay or make an offer to purchase or repay. "Permitted Holder" means any member of the Murdoch Family, The News Corporation Limited, Haim Saban and their respective controlled Affiliates. "Permitted Indebtedness" means, without duplication: (a) Indebtedness of the Company evidenced by the Notes; 109 (b) Indebtedness of the Company and Restricted Subsidiaries under the Bank Facility in an aggregate principal amount at any one time outstanding not to exceed $725 million, less any amounts permanently repaid in accordance with the covenant described under "Disposition of Proceeds of Asset Sales"; (c) Indebtedness of the Company or any Restricted Subsidiary outstanding on the date of the Indenture; (d) Indebtedness to third parties for the production of television programming by one or more special purpose partnerships, corporations, joint ventures or similar structures (in which any interest of the Company or any of its Restricted Subsidiaries is held through a Special Purpose Vehicle), the production decisions in respect of which are controlled by the Company or a Restricted Subsidiary; (e) Indebtedness consisting of the liabilities and obligations, contingent or otherwise, incurred by the Company or its Restricted Subsidiaries in the ordinary course of business (other than for borrowed money) to acquire, produce, license or distribute television programming; (f) Indebtedness of the Company or any Restricted Subsidiary of the Company incurred in respect of performance bonds, bankers' acceptances and letters of credit in the ordinary course of business, including Indebtedness evidenced by letters of credit issued in the ordinary course of business to support the insurance or self-insurance obligations of the Company or any of its Restricted Subsidiaries (including to secure workers' compensation and other similar insurance coverages), in the aggregate amount not to exceed $10 million at any time; but excluding letters of credit issued to secure money borrowed; (g)(i) Interest Rate Protection Obligations of the Company covering Indebtedness of the Company and (ii) Interest Rate Protection Obligations of any Restricted Subsidiary covering Indebtedness of such Restricted Subsidiary provided that, in the case of either clause (i) or (ii), the notional principal amount of any such Interest Rate Protection Obligations that exceeds the principal amount of the Indebtedness to which such Interest Rate Protection Obligations relate is otherwise permitted to be incurred under the Indenture; (h) Indebtedness of the Company or any Restricted Subsidiaries under Currency Agreements; provided that (x) such Currency Agreements relate to Indebtedness or the purchase price of goods purchased or sold by the Company or any Restricted Subsidiary in the ordinary course of its business and (y) such Currency Agreements do not increase the Indebtedness or other obligations of the Company or a Restricted Subsidiary outstanding other than as a result of fluctuations in foreign currency exchange rates or by reason of fees, indemnities and compensation payable thereunder; (i) Indebtedness of a Restricted Subsidiary owed to and held by the Company or another Restricted Subsidiary, except that (i) any transfer of such Indebtedness by the Company or a Restricted Subsidiary (other than to the Company or another Restricted Subsidiary) and (ii) the sale, transfer or other disposition by the Company or any Restricted Subsidiary of the Company of Capital Stock of a Restricted Subsidiary (other than to the Company or a Restricted Subsidiary) which is owed Indebtedness of another Restricted Subsidiary shall, in each case, be an incurrence of Indebtedness by such Restricted Subsidiary subject to the other provisions of the Indentures; (j) Indebtedness of the Company owed to and held by a Restricted Subsidiary which is unsecured and subordinated in right of payment to the payment and performance of the obligations of the Company under the Indentures and the Notes, except that (i) any transfer of such Indebtedness by the Company or a Restricted Subsidiary (other than to another Restricted Subsidiary) and (ii) the sale, transfer or other disposition by the Company or any Restricted Subsidiary of the Company of Capital Stock of a Restricted Subsidiary (other than to the Company or a Restricted Subsidiary) which is owed Indebtedness of the Company shall, in each case, be an incurrence of Indebtedness by the Company, subject to the other provisions of the Indentures; (k) Indebtedness arising from the honoring by a bank or other financial institution of a check, draft or similar instruments inadvertently (except in the case of daylight overdrafts) drawn against insufficient funds in the ordinary course of business; provided, however, that such Indebtedness is extinguished within five business days of incurrence; 110 (l) Indebtedness of the Company, in addition to that described in clauses (a) through (k) of this definition, in an aggregate principal amount outstanding at any time not to exceed $150 million; (m) Indebtedness represented by obligations to purchase Capital Stock of the Company pursuant to agreements, as in effect on the Issue Date, with employees of the Company and its Restricted Subsidiaries upon the termination of their employment in an aggregate principal amount not to exceed $30 million during the term of the Indenture; and (n) (i) Indebtedness of the Company the proceeds of which are used solely to refinance (whether by amendment, renewal, extension or refunding) Indebtedness of the Company or any of its Restricted Subsidiaries and (ii) Indebtedness of any Restricted Subsidiary of the Company the proceeds of which are used solely to refinance (whether by amendment, renewal, extension or refunding) Indebtedness of any Restricted Subsidiary (in each case other than the Indebtedness to be refinanced, redeemed or retired as described under "Use of Proceeds" herein, and Indebtedness under clause (b) or (g) through (m) of this definition); provided, however, that (x) the principal amount of Indebtedness incurred pursuant to this clause (n) (or, if such Indebtedness provides for an amount less than the principal amount thereof to be due and payable upon a declaration of acceleration of the maturity thereof, the original issue price of such Indebtedness) shall not exceed the sum of the principal amount of Indebtedness so refinanced, plus the amount of any premium required to be paid in connection with such refinancing pursuant to the terms of such Indebtedness or the amount of any premium reasonably determined by the Company as necessary to accomplish such refinancing by means of a tender offer or privately negotiated purchase, plus the amount of expenses in connection therewith, and (y) in the case of Indebtedness incurred by the Company pursuant to this clause (n) to refinance Subordinated Indebtedness, such Indebtedness (A) has no scheduled principal payment prior to the 91st day after the Maturity Date, (B) has an Average Life to Stated Maturity of the Notes and (C) is subordinated to the Notes in the same manner and to the same extent that the Subordinated Indebtedness being refinanced is subordinated to the Notes. "Permitted Investments" means any of the following: (i) Investments in the Company or in a Restricted Subsidiary; (ii) Investments in another person, if as a result of such Investment (A) such other person becomes a Restricted Subsidiary or (B) such other person is merged or consolidated with or into, or transfers or conveys all or substantially all of its assets to the Company or a Restricted Subsidiary; (iii) Investments representing Capital Stock or obligations issued to the Company or any of its Restricted Subsidiaries in settlement of claims against any other person by reason of a composition or readjustment of debt or a reorganization of any debtor of the Company or such Restricted Subsidiary; (iv) Investments in Interest Rate Protection Agreements on commercially reasonable terms entered into by the Company or any of its Restricted Subsidiaries in the ordinary course of business in connection with the operations of the business of the Company or its Restricted Subsidiaries to hedge against fluctuations in interest rates on its outstanding Indebtedness; (v) Investments in the Notes; (vi) Investments in Cash Equivalents; (vii) Investments acquired by the Company or any Restricted Subsidiary in connection with an Asset Sale permitted under "--Certain Covenants--Disposition of Proceeds of Asset Sales" to the extent such Investments are non-cash proceeds as permitted under such covenant; (viii) advances to employees or officers of the Company in the ordinary course of business; (ix) any Investment to the extent that the consideration therefor is Capital Stock (other than Redeemable Capital Stock) of the Company; and (x) Investments in any person engaged in the Entertainment/Programming Business not to exceed $65,000,000 at any time outstanding. "Permitted Liens" means the following types of Liens: (a) any Lien existing as of the date of the Indenture; (b) Liens securing Indebtedness and other amounts owing under the Bank Facility; (c) any Lien securing Acquired Indebtedness created prior to (and not created in connection with, or in contemplation of) the incurrence of such Indebtedness by the Company or any Restricted Subsidiary, if such Lien does not attach to any property or assets of the Company or any Restricted Subsidiary other than the property or assets subject to the Lien prior to such incurrence; (d) Liens in favor of the Company or a Restricted Subsidiary; 111 (e) Liens on and pledges of the Capital Stock of any Unrestricted Subsidiary securing any Indebtedness of such Unrestricted Subsidiary; (f) Liens for taxes, assessments or governmental charges or claims either (i) not delinquent for 90 days or more or (ii) contested in good faith by appropriate proceedings and as to which the Company or its Restricted Subsidiaries shall have set aside on its books such reserves as may be required pursuant to GAAP; (g) statutory Liens of landlords and Liens of carriers, warehousemen, mechanics, suppliers, materialmen, repairmen and other Liens imposed by law incurred in the ordinary course of business for sums not yet delinquent for 90 days or more or being contested in good faith and as to which reserves or other appropriate provisions, if any, as shall be required by GAAP shall have been made in respect thereof; (h) Liens incurred or deposits made in the ordinary course of business in connection with workers' compensation, unemployment insurance and other types of social security, or to secure the performance of tenders, statutory obligations, surety and appeal bonds, bids, leases, government contracts, performance and return-of-money bonds and other similar obligations (exclusive of obligations for the payment of borrowed money); (i) judgment Liens not giving rise to an Event of Default so long as such Lien is adequately bonded and any appropriate legal proceedings which may have been duly initiated for the review of such judgment shall not have been finally terminated or the period within which such proceedings may be initiated shall not have expired; (j) easements, rights-of-way, zoning restrictions and other similar charges or encumbrances in respect of real property not interfering in any material respect with the ordinary conduct of the business of the Company or any of its Restricted Subsidiaries; (k) any interest or title of a lessor or sublessor and any restriction or encumbrance to which the interest or title of such lessor or sublessor may be subject; (l) purchase money Liens to finance property or assets of the Company or any Restricted Subsidiary of the Company acquired in the ordinary course of business; provided, however, that (i) the related purchase money Indebtedness shall not be secured by any property or assets of the Company or any Restricted Subsidiary of the Company other than the property and assets so acquired and (ii) the Lien securing such Indebtedness shall be created within 180 days of such acquisition; (m) Liens securing reimbursement obligations with respect to commercial letters of credit which encumber documents and other property relating to such letters of credit and products and proceeds thereof; (n) Liens encumbering deposits made to secure obligations arising from statutory, regulatory, contractual, or warranty requirements of the Company or any of its Restricted Subsidiaries, including rights of offset and set- off; (o) Liens securing Interest Rate Protection Obligations which Interest Rate Protection Obligations relate to Indebtedness that is secured by Liens otherwise permitted under this Indenture; (p) Liens on assets of Unrestricted Subsidiaries; (q) Liens securing Capitalized Lease Obligations or incurred in connection with Sale-Leaseback Transactions; (r) Liens securing other Indebtedness in an aggregate amount not to exceed 10% of the Company's Consolidated Net Tangible Assets as of the last day of the Company's most recently completed fiscal period for which financial information is available; (s) Liens in favor of the Screen Actors Guild, the Writers Guild of America, the Directors Guild of America or any other unions, guilds or collective bargaining units under the collective bargaining agreements, which Liens are incurred in the ordinary course of business solely to secure the payment of residuals and other collective bargaining obligations required to be paid by the Company or any of its Restricted Subsidiaries under any such collective bargaining agreement; 112 (t) Liens arising in connection with completion guarantees entered into in the ordinary course of business and consistent with then current industry practices, securing obligations (other than Indebtedness for borrowed money) of the Company or any of its Restricted Subsidiaries not yet due and payable; (u) Liens in favor of suppliers and/or producers of any programming that are incurred in the ordinary course of business solely to secure the purchase price of such programming and such directly related rights or the rendering of services necessary for the production of such programming; provided, however, that no such Lien shall extend to or cover any property or assets other than the programming and the rights directly related thereto being so acquired or produced; and provided further that any payment obligations secured by such Liens shall by their terms be payable solely from the revenues that are derived directly from the exhibition, syndication, exploitation, distribution or disposition of such item of programming and/or such directly related rights; (v) Liens upon any item of programming and rights directly relating thereto in favor of distributors of such item of programming that are incurred in each case in the ordinary course of business solely to secure delivery of such item of programming and the licensing of the rights in such item of programming directly related thereto; provided, however, that no such Lien shall extend to or cover any property or assets other than the item of programming being so delivered and the rights directly related thereto; and provided further that any payment obligations secured by such Liens shall by their terms be payable solely from the revenues that are derived directly from the exhibition, syndication, exploitation, distribution or disposition of such item of Product and/or such directly related rights; and (w) Liens on assets or Capital Stock of a Special Purpose Vehicle. "person" means any individual, corporation, partnership, limited liability company, joint venture, association, joint-stock company, trust, unincorporated organization or government or any agency or political subdivision thereof. "Preferred Stock," as applied to any person, means Capital Stock of any class or classes (however designated) which is preferred as to the payment of dividends or distributions, or as to the distribution of assets upon any voluntary or involuntary liquidation or dissolution of such person, over shares of Capital Stock of any other class of such person. "principal amount at maturity" means, with respect to the Senior Discount Notes, $1,000 per $1,000 face amount of Senior Discount Notes; provided, however, that if the Company shall have made a Cash Interest Election, the principal amount at maturity with respect to each Senior Discount Note shall be the Accreted Value of such Senior Discount Note as of the Cash Interest Election Date. "Qualified Equity Interest" in a person means any interest in Capital Stock of such person, other than Redeemable Capital Stock. "Redeemable Capital Stock" means any class or series of Capital Stock that, either by its terms, by the terms of any security into which it is convertible or exchangeable or by contract or otherwise, is or upon the happening of an event or passage of time would be, required to be redeemed prior to the Maturity Date or is redeemable at the option of the holder thereof at any time prior to the Maturity Date, or is convertible into or exchangeable for debt securities at any time prior to the Maturity Date. "Restricted Subsidiary" means any Subsidiary of the Company that is not an Unrestricted Subsidiary. "Restricted Subsidiary Indebtedness" means Indebtedness of any Restricted Subsidiary (i) which is not subordinated to any other Indebtedness of such Restricted Subsidiary and (ii) in respect of which the Company is not also obligated (by means of a guarantee or otherwise) other than, in the case of this clause (ii), Indebtedness under the Bank Facility. "Sale-Leaseback Transaction" of any person means an arrangement with any lender or investor or to which such lender or investor is a party providing for the leasing by such person of any property or asset of such person 113 which has been or is being sold or transferred by such Person after the acquisition thereof or the completion of construction or commencement of operation thereof to such lender or investor or to any person to whom funds have been or are to be advanced by such lender or investor on the security of such property or asset. The stated maturity of such arrangement shall be the date of the last payment of rent or any other amount due under such arrangement prior to the first date on which such arrangement may be terminated by the lessee without payment of a penalty. "Significant Subsidiary" of any person means a Restricted Subsidiary of such person which would be a significant subsidiary of such person as determined in accordance with the definition in Section 210.1-02(w) of Regulation S-X promulgated by the Commission and as in effect on the date of the Indenture. "Special Purpose Vehicle" means a person which is, or was, established: (i) with separate legal identity and limited liability; (ii) as an Affiliate of the Company; and (iii) for the sole purpose of a single transaction, or series of related transactions, and which has no assets and liabilities other than those directly acquired or incurred in connection with such transaction(s). "Stated Maturity" means, when used with respect to any Note or any installment of interest thereon, the date specified in such Note as the fixed date on which the principal of such Note or such installment of interest is due and payable, and when used with respect to any other Indebtedness, means the date specified in the instrument governing such Indebtedness as the fixed date on which the principal of such Indebtedness, or any installment of interest thereon, is due and payable. "Strategic Equity Investor" means a corporation or entity with an equity market capitalization, a net asset value or annual revenues of at least $1.0 billion that primarily owns and operates businesses in the entertainment, cable television, programming or similar or related industries. "Subordinated Indebtedness" means, with respect to the Company, Indebtedness of the Company which is expressly subordinated in right of payment to the Notes. "Subsidiary" means, with respect to any person, (i) a corporation at least 50% of whose Voting Stock is at the time, directly or indirectly, owned by such person, by one or more Subsidiaries of such person or by such person and one or more Subsidiaries thereof and (ii) any other person (other than a corporation), including, without limitation, a partnership, limited liability company, business trust or joint venture, in which such person, one or more Subsidiaries thereof or such person and one or more Subsidiaries thereof, directly or indirectly, at the date of determination thereof, has at least a 50% ownership interest entitled to vote in the election of directors, managers or trustees thereof (or other person performing similar functions). For purposes of this definition, any directors' qualifying shares or investments by foreign nationals mandated by applicable law shall be disregarded in determining the ownership of a Subsidiary. "Unrestricted Subsidiary" means each Subsidiary of the Company designated as such pursuant to and in compliance with the covenant described under "-- Certain Covenants--Limitation on Designations of Unrestricted Subsidiaries." "Voting Stock" means any class or classes of Capital Stock pursuant to which the holders thereof have the general voting power under ordinary circumstances to elect at least 50% of the board of directors, managers or trustees of any person (irrespective of whether or not, at the time, stock of any other class or classes shall have, or might have, voting power by reason of the happening of any contingency). BOOK-ENTRY; DELIVERY AND FORM The Notes will be represented by a single, permanent global note in definitive, fully registered book-entry form for each of the Senior Notes and Senior Discount Notes (a "Global Security") which will be registered in the name of a nominee of DTC and deposited on behalf of purchasers of the Notes represented thereby with a custodian for DTC for credit to the respective accounts of the purchasers (or to such other accounts as they may direct) at DTC. 114 The Global Securities. The Company expects that pursuant to procedures established by DTC (a) upon deposit of the Global Securities, DTC or its custodian will credit on its internal system portions of the Global Securities which shall be comprised of the corresponding respective amounts of the Global Securities to the respective accounts of persons who have accounts with such depositary and (b) ownership of the Notes will be shown on, and the transfer of ownership thereof will be effected only through, records maintained by DTC or its nominee (with respect to interests of Participants (as defined below)) and the records of Participants (with respect to interests of persons other than Participants). Ownership of beneficial interests in the Global Securities will be limited to persons who have accounts with DTC ("Participants") or persons who hold interests through Participants. Investors may hold their interests in the Global Security directly through DTC if they are Participants in such system, or indirectly through organizations which are Participants in such system. So long as DTC or its nominee is the registered owner or holder of any of the Notes, DTC or such nominee will be considered the sole owner or holder of such Notes represented by the Global Securities for all purposes under the Indentures and under the Notes represented thereby. No beneficial owner of an interest in the Global Securities will be able to transfer such interest except in accordance with the applicable procedures of DTC in addition to those provided for under the Indentures. Payments of the principal of, premium, if any, and interest (including Additional Interest) on the Notes represented by the Global Securities will be made to DTC or its nominee, as the case may be, as the registered owner thereof. None of the Company, the Trustee or any paying agent under the Indenture will have any responsibility or liability for any aspect of the records relating to or payments made on account of beneficial ownership interests in the Global Securities or for maintaining, supervising or reviewing any records relating to such beneficial ownership interest. The Company expects that DTC or its nominee, upon receipt of any payment of the principal of, premium, if any, and interest (including Additional Interest) on the Notes represented by the Global Securities, will credit Participants' accounts with payments in amounts proportionate to their respective beneficial interests in the Global Securities as shown in the records of DTC or its nominee. The Company also expects that payments by Participants to owners of beneficial interests in the Global Securities held through such Participants will be governed by standing instructions and customary practice as is now the case with securities held for the accounts of customers registered in the names of nominees for such customers. Such payment will be the responsibility of such Participants. Transfers between Participants in DTC will be effected in accordance with DTC rules and will be settled in immediately available funds. If a holder requires physical delivery of a Certificated Security for any reason, including to sell Notes to persons in states which require physical delivery of such securities or to pledge such securities, such holder must transfer its interest in the Global Securities in accordance with the normal procedures of DTC and in accordance with the procedures set forth in the Indenture. Any beneficial interest in one of the Global Securities that is transferred to a person who takes delivery in the form of an interest in the other Global Security will, upon transfer, cease to be an interest in such Global Security and, accordingly, will thereafter be subject to all transfer restrictions, if any, and other procedures applicable to beneficial interests in such other Global Security with respect to the applicable notes for as long as it remains such an interest. DTC has advised the Company that DTC will take any action permitted to be taken by a holder of Notes (including the presentation of Notes for exchange as described below) only at the direction of one or more Participants to whose account the DTC interests in the Global Securities are credited and only in respect of the aggregate principal amount as to which such Participant or Participants has or have given such direction. However, if there is an Event of Default under the Indenture, DTC will exchange the Global Securities for Certificated Securities, which it will distribute to its Participants and which will be legended as set forth under the heading "Notice to Investors." DTC has advised the Company as follows: DTC is a limited purpose trust company organized under the laws of the State of New York, a member of the Federal Reserve System, a "clearing corporation" within the 115 meaning of the Uniform Commercial Code and a "clearing agency" registered pursuant to the provisions of Section 17A of the Exchange Act. DTC was created to hold securities for its Participants and facilitate the clearance and settlement of securities transactions between Participants through electronic book-entry changes in accounts of its Participants, thereby eliminating the need for physical movement of certificates. Participants include securities brokers and dealers, banks, trust companies and clearing corporations and certain other organizations. Indirect access to the DTC system is available to others such as banks, brokers, dealers and trust companies that clear through or maintain a custodial relationship with a Participant, either directly or indirectly ("Indirect Participants"). Although DTC is expected to follow the foregoing procedures in order to facilitate transfers of interests in the Global Securities among Participants of DTC, it is under no obligation to perform such procedures, and such procedures may be discontinued at any time. Neither the Company nor the Trustee will have any responsibility for the performance by DTC, or its respective direct or indirect participants of their respective obligations under the rules and procedures governing their operations. Certificated Securities. Interests in the Global Securities will be exchanged for Certificated Securities if (i) DTC notifies the Company that it is unwilling or unable to continue as depositary for the Global Securities, or DTC ceases to be a "Clearing Agency" registered under the Exchange Act, and a successor depositary is not appointed by the Company within 40 days, or (ii) an Event of Default has occurred and is continuing with respect to the Notes. Upon the occurrence of any of the events described in the preceding sentence, the Company will cause the appropriate Certificated Securities to be delivered. 116 CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS THE FOLLOWING SUMMARY OF THE UNITED STATES FEDERAL INCOME TAX CONSEQUENCES OF THE PURCHASE, OWNERSHIP AND DISPOSITION OF THE NOTES IS APPLICABLE IN ALL MATERIAL RESPECTS TO THE PURCHASE, OWNERSHIP AND DISPOSITION OF THE OLD NOTES. UNLESS THE CONTEXT OTHERWISE REQUIRES, FOR PURPOSES OF THIS SUMMARY REFERENCES TO THE "NOTES" ARE TO THE NOTES AND THE OLD NOTES, COLLECTIVELY, REFERENCES TO THE "SENIOR NOTES" ARE TO THE SENIOR NOTES AND THE OLD SENIOR NOTES, COLLECTIVELY, AND REFERENCES TO THE "SENIOR DISCOUNT NOTES" ARE TO THE SENIOR DISCOUNT NOTES AND THE OLD SENIOR DISCOUNT NOTES, COLLECTIVELY. The following is a summary of certain of the material United States federal income tax consequences of the purchase, ownership and disposition of the Notes. It is intended only as a descriptive summary and does not purport to be a complete technical analysis or listing of all potential tax effects to Holders. Unless otherwise stated, this summary only deals with Notes held as capital assets by U.S. Holders (as defined herein) who purchased such Notes upon original issuance at the issue price therefor. As used herein, "U.S. Holder" means a beneficial owner of the Notes that is (a) an individual citizen or resident of the United States or any political subdivision thereof, (b) a corporation or partnership organized in or under the laws of the United States or a state, (c) an estate the income of which is subject to United States federal income taxation regardless of its source, or (d) a trust if (i) a court within the United States is able to exercise primary supervision over the administration of the trust and (ii) one or more United States persons have the authority to control all substantial decisions of the trust. This discussion does not deal with all classes of holders, such as banks, thrifts, real estate investment trusts, regulated investment companies, dealers in securities or currencies, tax-exempt investors, persons that have a functional currency other than the U.S. dollar or persons that will hold the Notes as part of a "synthetic security," "hedge," "straddle," "conversion transaction," or other than as a capital asset. This summary is based upon the Internal Revenue Code of 1986, as amended, Treasury Regulations thereunder and administrative and judicial interpretations thereof, as of the date hereof, all of which are subject to change, possibly on a retroactive basis. Prospective purchasers of the Notes should consult with their tax advisors concerning issues including (i) the application of United States federal income tax laws to them stemming from an investment in the Notes, (ii) any consequences to them arising under the laws of any other taxing jurisdiction, including, without limitation, the laws of any state, local or foreign taxing jurisdiction, and (iii) the consequences of purchasing the Notes at a price other than the issue price. INTEREST It is not expected that the Senior Notes will be issued with OID in excess of a de minimis amount. Accordingly, interest on the Senior Notes will be taxable to a U.S. Holder as ordinary interest income in accordance with the U.S. Holder's method of tax accounting at the time that such interest is accrued or (actually or constructively) received. ORIGINAL ISSUE DISCOUNT For United States federal income tax purposes, the Senior Discount Notes will be considered to be issued with OID. The amount of OID will be the excess of a Senior Discount Note's stated redemption price at maturity over its issue price. The issue price of a Senior Discount Note will equal the first price at which a substantial amount of the Senior Discount Notes are sold. The stated redemption price at maturity of a Senior Discount Note will equal the amount payable at maturity (i.e., 100% of the initial principal amount of the Senior Discount Note) plus all stated interest thereon. A U.S. Holder of a Senior Discount Note will be required to include OID in its gross taxable income (as ordinary income) periodically over the term of the Senior Discount Note before receipt of the cash attributable to such income, using a constant yield method that takes into account the compounding of interest. Such 117 treatment will continue to apply whether or not the Company makes the Cash Interest Election. The Company's exercise of the Cash Interest Election and reduction of the principal amount at maturity of the Senior Discount Notes will not represent a taxable event to a U.S. Holder of a Senior Discount Note. The receipt of cash interest payments under a Senior Discount Note will not be taxable to a holder; rather such payments will be treated as payments of OID which will reduce the holder's adjusted tax basis in the Senior Discount Note. The Company will furnish annually to the U.S. Internal Revenue Service and to U.S. Holders (other than with respect to certain exempt holders, including, in particular, corporations) information with respect to the OID accruing while the Senior Discount Notes were held by the U.S. Holders. Such information will be based on the accruals of OID as if the holder were the original holder of the Senior Discount Note. SALE, EXCHANGE AND RETIREMENT OF NOTES A U.S. Holder will recognize gain or loss equal to the difference between the amount realized upon the sale, exchange or retirement of the Notes and the U.S. Holder's adjusted tax basis in the Notes. A U.S. Holder's adjusted tax basis in a Senior Discount Note will generally equal the issue price of such Senior Discount Note, increased by the amount of any OID previously included in income by such U.S. Holder with respect to such Senior Discount Note and reduced by any principal and interest payments received by the U.S. Holder with respect to such Senior Discount Note. Except with respect to accrued but unpaid interest, such gain or loss will be capital gain or loss. Under the recently enacted Taxpayer Relief Act of 1997, net capital gain (i.e., generally, capital gain in excess of capital loss) recognized by an individual upon the sale or exchange of a capital asset that has been held for more than 18 months will generally be subject to tax at a rate not to exceed 20%. Net capital gain recognized by an individual from the sale or exchange of a capital asset that has been held for more than 12 months but not for more than 18 months will continue to be subject to tax at a rate not to exceed 28%, and net capital gain recognized from the sale or exchange of a capital asset that has been held for 12 months or less will continue to be subject to tax at ordinary income tax rates. In addition, net capital gain recognized by a corporate taxpayer will continue to be subject to tax at the ordinary income tax rates applicable to corporations. EXCHANGE OFFER The exchange of Old Notes for Notes pursuant to the Exchange Offer will not be taxable to the U.S. Holders of the Notes. BACKUP WITHHOLDING The backup withholding rules require the Company to deduct and withhold federal income tax at the rate of 31% with respect to payments made to noncorporate holders who are not otherwise exempt if (a) the holder fails to furnish a taxpayer identification number ("TIN") to the Company, (b) the IRS notifies the Company that the TIN furnished by the holder is incorrect, (c) there has been notified payee underpaying, or (d) there has been payee certification failure. Any amounts withheld from a payment to a holder under the backup withholding rules will be allowed as a refund or credit against such holder's federal income tax, provided that the required information is furnished to the IRS. NON-UNITED STATES HOLDERS Payments of interest and OID on the Notes to a Holder who is not a U.S. Holder (a "Non-U.S. Holder") may, if certain conditions are met, be exempt from United States federal income tax, including withholding tax, unless the interest and OID is effectively connected with the conduct of a trade or business of the Non-U.S. Holder in the Untied States or, if a treaty applies, the interest and OID is generally attributable to the United States permanent establishment maintained by the Non-U.S. Holder. A Non-U.S. Holder of the Notes will not be subject to United States federal income tax, including withholding tax, on gain realized on the sale or other disposition of the Notes unless (i) such gain is effectively connected with the conduct by the Non-U.S. Holder of a trade or business within the United States or, if a treaty applies, the gain is generally attributable to the United States permanent establishment maintained by the Non-U.S. Holder, or (ii) in the case of gain realized by an individual holder, the Holder is present in the United States for at least 183 days in the taxable year of the disposition and certain other conditions are met. 118 PLAN OF DISTRIBUTION Each broker-dealer that receives the Notes for its own account pursuant to the Exchange Offer (a "Participating Broker") must acknowledge that it will deliver a prospectus in connection with any resale of such Notes. This Prospectus, as it may be amended or supplemented from time to time, may be used by a Participating Broker in connection with resales of the Notes received in exchange for the Old Notes where such Old Notes were acquired as a result of market-making activities or other trading activities. The Company has agreed that for a period of 90 days after the Expiration Date, it will make this Prospectus, as amended or supplemented, available to any Participating Broker for use in connection with any such resale. In addition, until , 1998 (90 days after the date of this Prospectus), all dealers effecting transactions in the Notes may be required to deliver a prospectus. The Company will not receive any proceeds from any sale of the Notes by broker-dealers. The Notes received by broker-dealers for their own account pursuant to the Exchange Offer may be sold from time to time in one or more transactions in the over-the-counter market, in combination of such methods of resale, at market prices prevailing at the time of resale, at prices related to such prevailing market prices or negotiated prices. Any such resale may be made directly to purchasers or to or through brokers or dealers who may receive compensation in the form of commissions or concessions from any such broker-dealer or the purchasers of any such Notes. Any broker-dealer that resells Notes that were received by it for its own account pursuant to the Exchange Offer and any broker or dealer that participates in a distribution of such Notes may be deemed to be an "underwriter" within the meaning of the Securities Act and any profit on any such resale of Notes and any commissions or concessions received by any such persons may be deemed to be underwriting compensation under the Securities Act. The Letter of Transmittal states that, by acknowledging that it will deliver and by delivering a prospectus, a broker-dealer will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. For a period of 90 days after the Expiration Date, the Company will promptly send additional copies of this Prospectus and any amendment or supplement to this Prospectus to any Participating Broker that requests such documents in the Letter of Transmittal. The Company has agreed to pay all expenses incident to the Exchange Offer (including the expenses of one counsel for the holders of the Old Notes) other than commissions or concessions of any brokers or dealers and will indemnify the holders of the Old Notes (including any Participating Broker) against certain liabilities, including liabilities under the Securities Act. LEGAL MATTERS The validity of the Notes will be passed upon for the Company by Squadron, Ellenoff, Plesent & Sheinfeld, LLP, New York, New York. The Company has been advised by Troop Meisinger Steuber & Pasich, LLP, Los Angeles, California and Squadron, Ellenoff, Plesent & Sheinfeld, LLP, New York, New York with respect to the Exchange Offer. EXPERTS The consolidated financial statements of Saban Entertainment, Inc. at May 31, 1995 and at October 31, 1995, and for the year ended May 31, 1995 and the five month period ended October 31, 1995, appearing in this Prospectus and Registration Statement, have been audited by Ernst & Young LLP, independent auditors, as set forth in their report thereon appearing elsewhere herein, and are included in reliance upon such report given upon the authority of such firm as experts in accounting and auditing. The consolidated financial statements of FCN Holding, Inc. at July 2, 1995 and October 29, 1995, and for the year ended July 2, 1995 and for the four months ended October 29, 1995 appearing in this Prospectus and Registration Statement, have been audited by Ernst & Young LLP, independent auditors, as set forth in their report thereon appearing elsewhere herein, and are included in reliance upon such report given upon the authority of such firm as experts in accounting and auditing. 119 The combined financial statements of FCN Holding, Inc., Saban Entertainment, Inc. and Fox Kids Worldwide, L.L.C. (from and after the date of the Reorganization, Fox Kids Worldwide, Inc.) at June 30, 1996 and 1997 and for the eight months ended June 30, 1996 and for the year ended June 30, 1997, appearing in this Prospectus and Registration Statement have been audited by Ernst & Young LLP, independent auditors, as set forth in their report thereon appearing elsewhere herein, and are included in reliance upon such report given upon the authority of such firm as experts in accounting and auditing. The consolidated financial statements of International Family Entertainment, Inc. at December 31, 1995 and 1996 and for each of the years in the three year period ended December 31, 1996 have been included herein and in the Registration Statement in reliance upon the report of KPMG Peat Marwick LLP, independent certified public accountants, appearing elsewhere herein, and upon the authority of said firm, as experts in accounting and auditing. 120 INDEX TO FINANCIAL STATEMENTS
PAGE ---- FCN HOLDING, INC., SABAN ENTERTAINMENT, INC. AND FOX KIDS WORLDWIDE, L.L.C. (FROM AND AFTER THE DATE OF THE REORGANIZATION (NOTE 1), FOX KIDS WORLDWIDE, INC.) Report of Independent Auditors.......................................... F-2 Combined Balance Sheets as of June 30, 1996 and 1997 and Consolidated Balance Sheet as of September 30, 1997 (unaudited)..................... F-3 Combined Statements of Operations for the eight months ended June 30, 1996, for the year ended June 30, 1997 and for the three months ended September 30, 1996 (unaudited) and Consolidated Statement of Operations for the three months ended September 30, 1997 (unaudited).............. F-4 Combined Statements of Stockholders' Equity for the eight months ended June 30, 1996, for the year ended June 30, 1997 and Consolidated Statement of Stockholders' Equity for the three months ended September 30, 1997 (unaudited)......................................... F-5 Combined Statements of Cash Flows for the eight months ended June 30, 1996 and for the year ended June 30, 1997 and for the three months ended September 30, 1996 (unaudited) and Consolidated Statement of Cash Flows for the three months ended Septemhber 30, 1997 (unaudited)....... F-6 Notes to Combined Financial Statements.................................. F-8 FCN HOLDING, INC. Report of Independent Auditors.......................................... F-32 Consolidated Balance Sheets as of July 2, 1995 and October 31, 1995..... F-33 Consolidated Statements of Operations for the periods ended July 2, 1995 and October 31, 1995................................................... F-34 Consolidated Statements of Stockholder's Equity for the periods ended July 2, 1995 and October 31, 1995...................................... F-35 Consolidated Statements of Cash Flows for the period ended July 2, 1995 and October 31, 1995................................................... F-36 Notes to Consolidated Financial Statements.............................. F-37 SABAN ENTERTAINMENT, INC. Report of Independent Auditors.......................................... F-42 Consolidated Balance Sheets as of May 31, 1995 and October 31, 1995..... F-43 Consolidated Statements of Operations for the years ended May 31, 1995 and for the five months ended October 31, 1995......................... F-44 Consolidated Statements of Stockholders' Equity for the years ended May 31, 1995 and for the five months ended October 31, 1995................ F-45 Consolidated Statements of Cash Flows for the years ended May 31, 1995 and for the five months ended October 31, 1995......................... F-46 Notes to Consolidated Financial Statements.............................. F-47 INTERNATIONAL FAMILY ENTERTAINMENT, INC. Consolidated Balance Sheets as of December 31, 1996 and June 30, 1997 (unaudited)............................................................ F-57 Consolidated Statements of Operations for the six months ended June 30, 1996 and 1997 (unaudited).............................................. F-58 Consolidated Statements of Cash Flows for the six months ended June 30, 1996 and 1997 (unaudited).............................................. F-59 Notes to Consolidated Financial Statements (unaudited).................. F-60 Independent Auditors' Report............................................ F-64 Consolidated Balance Sheets as of December 31, 1995 and 1996............ F-65 Consolidated Statements of Operations for the years ended December 31, 1994, 1995 and 1996.................................................... F-66 Consolidated Statements of Cash Flows for the years ended December 31, 1994, 1995 and 1996 ................................................... F-67 Consolidated Statements of Stockholders' Equity for the years ended December 31, 1994, 1995 and 1996....................................... F-68 Notes to Consolidated Financial Statements.............................. F-69
F-1 REPORT OF INDEPENDENT AUDITORS Board of Directors FCN Holding, Inc., Saban Entertainment, Inc. and Fox Kids Worldwide, L.L.C. We have audited the combined financial statements of FCN Holding, Inc., Saban Entertainment, Inc. and Fox Kids Worldwide, L.L.C. (from and after the date of the Reorganization (Note 1), Fox Kids Worldwide, Inc.) as of June 30, 1996 and 1997 and the related combined statements of operations, stockholders equity, and cash flows for the eight months ended June 30, 1996 and the year ended June 30, 1997. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the combined financial position of FCN Holding, Inc., Saban Entertainment, Inc. and Fox Kids Worldwide, L.L.C. (from and after the date of the Reorganization (Note 1), Fox Kids Worldwide, Inc.) at June 30, 1996 and 1997 and the combined results of their operations and their cash flows for the eight months ended June 30, 1996 and the year ended June 30, 1997, in conformity with generally accepted accounting principles. Ernst & Young LLP Los Angeles, California September 29, 1997, except for the 2nd, 3rd, 6th, and 7th sentence of the 35th paragraph of Note 1, as to which the date is January 21, 1998. F-2 FCN HOLDING, INC., SABAN ENTERTAINMENT, INC. AND FOX KIDS WORLDWIDE, L.L.C. (FROM AND AFTER THE DATE OF THE REORGANIZATION (NOTE 1), FOX KIDS WORLDWIDE, INC.) BALANCE SHEETS
COMBINED CONSOLIDATED -------------------------- -------------- SEPTEMBER 30, JUNE 30, JUNE 30, 1997 1996 1997 (UNAUDITED) ------------ ------------ -------------- Assets Cash and cash equivalents......... $ 16,044,000 $ 28,877,000 $ 100,267,000 Restricted cash................... 8,000,000 8,000,000 8,000,000 Accounts receivable, net of allowance for doubtful accounts of $1,690,000 (June 30, 1996) and $1,410,000 (June 30, 1997 and September 30, 1997).............. 53,106,000 63,316,000 135,468,000 Amounts receivable from related parties.......................... 28,908,000 29,037,000 30,348,000 Programming costs, less accumulated amortization......... 181,427,000 235,575,000 384,550,000 Property and equipment, at cost, less accumulated depreciation.... 8,711,000 8,921,000 74,859,000 Deferred income taxes............. 27,023,000 17,651,000 38,654,000 Investment in and advances to affiliates....................... -- 7,102,000 5,950,000 Assets held for sale, net......... -- -- 17,110,000 Intangible assets, less accumulated amortization......... -- -- 1,665,445,000 Other assets, including $1,284,000 (June 30, 1997) associated with related parties.................. 13,051,000 13,922,000 41,982,000 ------------ ------------ -------------- Total assets...................... $336,270,000 $412,401,000 $2,502,633,000 ============ ============ ============== Liabilities and stockholders' equity Accounts payable (including $3,088,000 (June 30, 1997) due to related parties)................. $ 10,706,000 $ 19,481,000 $ 53,088,000 Accrued liabilities (including $236,000 (June 30, 1996) and $4,576,000 (June 30, 1997) due to related parties)................. 27,733,000 42,991,000 114,750,000 Deferred revenue (including $6,962,000 (June 30, 1997) from related parties)................. 67,882,000 40,794,000 46,570,000 Fox Kids Network affiliate participation payable............ 13,738,000 21,853,000 21,304,000 Accrued programming expenditures.. 15,179,000 9,796,000 85,568,000 Accrued residuals and participations................... 22,040,000 24,028,000 24,317,000 Income taxes payable.............. 3,884,000 3,257,000 3,246,000 Deferred income taxes............. 790,000 1,250,000 2,203,000 Debt.............................. 19,916,000 57,592,000 1,271,140,000 Amounts payable to related parties.......................... 81,571,000 58,672,000 7,518,000 NAHI Bridge Note.................. -- -- 345,514,000 Fox Subordinated Note............. -- -- 104,573,000 ------------ ------------ -------------- Total liabilities................. 263,439,000 279,714,000 2,079,791,000 Commitments and contingencies Series A Preferred Stock, $0.001 par value; 500,000 shares authorized; 345,000 shares issued and outstanding ($1,000 per share liquidation value)............... -- -- 345,000,000 Stockholders' equity: -- -- -- Preferred Stock, $0.001 par value; 19,500,000 shares authorized; no shares issued or outstanding.................... -- -- -- Preferred class A members interest....................... 40,000,000 50,000,000 -- Common stock, $.01 par value: 10,000 shares authorized 800 shares issued and outstanding (Saban Entertainment, Inc.)......... -- -- -- Common stock, no par value: 2,000 (June 30, 1996) and 1,000 (June 30, 1997) shares authorized 2,000 (June 30, 1996) and 816.16 (June 30, 1997) shares issued and outstanding (FCN Holding, Inc.)............... 2,000 800 -- Class A Common Stock, $0.001 par value; 16,000,000 shares authorized; 160,000 shares issued and outstanding......... -- -- 160 Class B Common Stock, $0.001 par value; 16,000,000 shares authorized; 15,840,000 shares issued and outstanding......... 15,840 Contributed capital............. 49,245,000 59,454,200 61,032,000 Cumulative translation adjustment..................... (11,000) (803,000) (877,000) Retained (deficit) earnings..... (16,405,000) 24,035,000 17,671,000 ------------ ------------ -------------- Total stockholders' equity........ 72,831,000 132,687,000 77,842,000 ------------ ------------ -------------- Total liabilities and stockholders' equity............. $336,270,000 $412,401,000 $2,502,633,000 ============ ============ ==============
See accompanying notes. F-3 FCN HOLDING, INC., SABAN ENTERTAINMENT, INC. AND FOX KIDS WORLDWIDE, L.L.C. (FROM AND AFTER THE DATE OF THE REORGANIZATION (NOTE 1), FOX KIDS WORLDWIDE, INC.) STATEMENTS OF OPERATIONS
COMBINED CONSOLIDATED ------------------------------------------ ------------- THREE MONTHS THREE MONTHS ENDED ENDED EIGHT MONTHS SEPTEMBER 30, SEPTEMBER 30, ENDED JUNE 30, YEAR ENDED 1996 1997 1996 JUNE 30, 1997 (UNAUDITED) (UNAUDITED) -------------- ------------- ------------- ------------- Net revenues (including $5,498,000 (1996) and $21,316,000 (1997) from related parties)....... $191,621,000 $307,820,000 $63,801,000 $122,946,000 Costs and expenses: Production and programming (including $4,301,000 (1997) to a related party)............... 98,937,000 180,381,000 30,384,000 68,889,000 Selling, general and administrative (including $1,114,000 (1996) and $2,322,000 (1997) to a related party)............... 23,072,000 62,466,000 12,513,000 27,244,000 Fox Kids Network affiliate participations....... 8,853,000 6,194,000 4,177,000 (448,000) Amortization of intangible assets ... -- -- -- 6,969,000 ------------ ------------ ----------- ------------ Operating income........ 60,759,000 58,779,000 16,727,000 20,292,000 Investment advisory fee.................... 10,000,000 -- -- -- Equity in loss of unconsolidated affiliate.............. -- 1,546,000 -- 1,184,000 Other expense........... -- -- -- 282,000 Interest expense (including $170,000 (1996) and $854,000 (1997) to a related party)................. 885,000 2,226,000 648,000 18,814,000 ------------ ------------ ----------- ------------ Income before provision for income taxes....... 49,874,000 55,007,000 16,079,000 12,000 Provision for income taxes.................. 18,274,000 14,567,000 4,635,000 1,187,000 ------------ ------------ ----------- ------------ Net income (loss)....... $ 31,600,000 $ 40,440,000 $11,444,000 $ (1,175,000) ============ ============ =========== ============ Net income (loss) attributable to common shareholders........... $ 31,600,000 $ 40,440,000 $11,444,000 $ (6,364,000) ============ ============ =========== ============ Net income (loss) per common share........... $ 1.98 $ 2.53 $ .72 $ (.40) ============ ============ =========== ============ Weighted average shares outstanding............ 16,000,000 16,000,000 16,000,000 16,000,000 ============ ============ =========== ============
See accompanying notes. F-4 FCN HOLDING, INC., SABAN ENTERTAINMENT, INC. AND FOX KIDS WORLDWIDE, L.L.C. (FROM AND AFTER THE DATE OF THE REORGANIZATION (NOTE 1), FOX KIDS WORLDWIDE, INC.) STATEMENTS OF STOCKHOLDERS' EQUITY
PREFERRED CLASS A MEMBERS INTEREST COMMON STOCK CUMULATIVE RETAINED ------------------ ------------------- CONTRIBUTED TRANSLATION EARNINGS SHARES AMOUNT SHARES AMOUNT CAPITAL ADJUSTMENT (DEFICIT) TOTAL ------ ----------- ---------- ------- ----------- ----------- ----------- ------------ Balance at November 1, 1995 (combined)................ -- $ -- 2,000 $ 2,000 $ -- $ -- $(4,132,000) $ (4,130,000) Transactions at November 1, 1995: Capital contributions.... -- -- -- -- 29,344,000 -- -- 29,344,000 Forgiveness of debt...... -- -- -- -- 5,124,000 -- -- 5,124,000 Distribution............. -- -- -- -- -- -- (2,700,000) (2,700,000) Saban Entertainment, Inc..................... -- -- 800 -- 11,751,000 46,000 83,174,000 94,971,000 Elimination of certain amounts between FCN Holding, Inc. and Saban Entertainment, Inc...... -- -- -- -- -- -- (4,247,000) (4,247,000) Payment to a related party for a stock purchase option................... -- -- -- -- -- -- (80,100,000) (80,100,000) Related party tax obligation............... -- -- -- -- 3,026,000 -- -- 3,026,000 Exchange loss on translation of foreign subsidiaries' financial statements............... -- -- -- -- -- (57,000) -- (57,000) Net income................ -- -- -- -- -- -- 31,600,000 31,600,000 Amount attributable to Preferred Class A Members Interest................. -- 40,000,000 -- -- -- -- (40,000,000) -- --- ----------- ---------- ------- ----------- --------- ----------- ------------ Balance at June 30, 1996 (combined)................ -- 40,000,000 2,800 2,000 49,245,000 (11,000) (16,405,000) 72,831,000 Issuance of Preferred Class A Members Interest................. -- 10,000,000 -- -- -- -- -- 10,000,000 Capital contribution...... (1,183.84) (1,200) 1,200 Capital contributions..... -- -- -- -- 5,376,000 -- -- 5,376,000 Exchange loss on translation of foreign subsidiaries' financial statements............... -- -- -- -- -- (792,000) -- (792,000) Related party tax obligation............... -- -- -- -- 4,832,000 -- -- 4,832,000 Net income................ -- -- -- -- -- -- 40,440,000 40,440,000 --- ----------- ---------- ------- ----------- --------- ----------- ------------ Balance at June 30, 1997 (combined)................ -- $50,000,000 1,616.16 $ 800 $59,454,200 $(803,000) $24,035,000 $132,687,000 Transactions related to the reorganization: Exchange of Preferred Class A Members Interest................ (50,000,000) (50,000,000) Issuance of Class A Common Stock............ 160,000 160 160 Issuance of Class B Common Stock............ 15,840,000 15,840 (5,200) 10,640 Exchange of Common Stock................... (1,616.16) (800) (800) Capital contributions.... 1,583,000 1,583,000 Exchange loss on translation of foreign subsidiaries' financial statements.............. (74,000) (74,000) Dividends on Series A Preferred Stock......... (5,189,000) (5,189,000) Net loss................. (1,175,000) (1,175,000) --- ----------- ---------- ------- ----------- --------- ----------- ------------ Balance at September 30, 1997 (consolidated)(unaudited).. $ -- 16,000,000 $16,000 $61,032,000 $(877,000) $17,671,000 $ 77,842,000 === =========== ========== ======= =========== ========= =========== ============
See accompanying notes. F-5 FCN HOLDING, INC., SABAN ENTERTAINMENT, INC. AND FOX KIDS WORLDWIDE, L.L.C. (FROM AND AFTER THE DATE OF THE REORGANIZATION (NOTE 1), FOX KIDS WORLDWIDE, INC.) STATEMENTS OF CASH FLOWS
COMBINED CONSOLIDATED ------------------------------------------- --------------- THREE MONTHS THREE MONTHS EIGHT MONTHS ENDED ENDED ENDED JUNE 30, YEAR ENDED SEPTEMBER 30, SEPTEMBER 30, 1996 JUNE 30, 1997 1996 1997 -------------- ------------- ------------- --------------- (UNAUDITED) (UNAUDITED) OPERATING ACTIVITIES Net income (loss)....... $ 31,600,000 $ 40,440,000 $11,444,000 $ (1,175,000) Adjustments to reconcile net income to net cash provided by (used in) operating activities: Amortization of programming costs.... 83,485,000 144,713,000 34,170,000 57,633,000 Depreciation.......... 1,585,000 3,226,000 733,000 2,555,000 Amortization of intangible assets.... -- -- -- 6,969,000 Cumulative translation adjustment........... (57,000) (792,000) 151,000 (74,000) Equity in loss of unconsolidated affiliate............ -- 1,546,000 -- 1,184,000 Investment advisory fee.................. 10,000,000 -- -- -- Changes in operating assets and liabilities: Restricted cash..... (3,000,000) -- -- Investment in marketable securities......... -- -- -- 5,717,000 Accounts receivable......... 16,035,000 (10,210,000) (7,901,000) (6,026,000) Amounts receivable from related parties............ (11,791,000) 3,860,000 24,698,000 (1,311,000) Additions to programming costs.. (113,506,000) (198,861,000) (58,133,000) (69,022,000) Other assets........ 2,194,000 (872,000) (977,000) (15,087,000) Accounts payable.... (5,495,000) 8,775,000 2,447,000 12,550,000 Accrued liabilities........ (2,290,000) 15,259,000 1,452,000 5,861,000 Accrued residuals and participations..... 5,771,000 1,988,000 836,000 (184,000) Administration fee payable to a related party...... (6,173,000) (769,000) 375,000 -- Income taxes payable and deferred income taxes.............. (9,583,000) 14,038,000 2,732,000 397,000 Deferred revenue.... 23,437,000 (27,088,000) (6,190,000) (12,666,000) Fox Kids Network affiliate participation payable............ (4,682,000) 8,115,000 8,744,000 (549,000) Accrued programming expenditures....... (4,637,000) (5,383,000) (1,450,000) (4,654,000) ------------ ------------ ----------- --------------- Net cash (used in) provided by operating activities............. 12,893,000 (2,015,000) 13,131,000 (17,882,000) INVESTING ACTIVITIES Purchase of property and equipment.............. (3,053,000) (3,435,000) (961,000) (1,156,000) Acquisition of programming rights..... (7,200,000) (4,800,000) -- -- Acquisition of Creativite & Developpement SA....... (1,722,000) (176,000) -- -- Acquisition of TV10..... -- (8,648,000) -- -- Acquisition of International Family Entertainment, Inc., net of preferred stock.................. -- -- -- (1,368,381,000) Sale of marketable securities............. -- -- -- 55,679,000 Cash acquired in acquisition of Creativite & Developpement SA....... 3,151,000 -- -- -- Cash acquired in deemed acquisition of Saban Entertainment, Inc..... 16,207,000 -- -- -- Cash acquired in acquisition of International Family Entertainment, Inc. ... -- -- -- 19,241,000 ------------ ------------ ----------- --------------- Net cash (used in) provided by investing activities............. 7,383,000 (17,059,000) (961,000) (1,294,617,000) FINANCING ACTIVITIES Proceeds from bank borrowings............. $ 15,880,000 $ 52,569,000 $ 129,000 1,281,654,000 Payments on bank borrowings............. (11,606,000) (9,917,000) (1,334,000) (205,491,000) Payment to a related party for a stock purchase option........ (80,100,000) -- -- -- Dividends on preferred stock.................. -- -- -- (5,189,000) Proceeds from issuance of Preferred Class A Members interest....... -- 10,000,000 10,000,000 -- Proceeds from NAHI Bridge loan............ -- -- -- 345,514,000 Increase in assets held for sale............... -- -- -- (37,611,000) Issuance of common stock.................. -- -- -- 10,000 Advances from related parties................ 67,967,000 (20,285,000) (7,459,000) 5,002,000 Capital contributions from related parties... 3,310,000 -- -- -- Capital distribution to related party.......... -- (460,000) -- -- ------------ ------------ ----------- --------------- Net cash provided by (used in) financing activities............. (4,549,000) 31,907,000 1,336,000 1,383,889,000 ------------ ------------ ----------- --------------- Increase in cash and cash equivalents....... 15,727,000 12,833,000 13,506,000 71,390,000 Cash and cash equivalents at beginning of period.... 317,000 16,044,000 16,044,000 28,877,000 ------------ ------------ ----------- --------------- $ 16,044,000 $ 28,877,000 $29,550,000 $ 100,267,000 ============ ============ =========== =============== SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION Cash paid during the period for: Interest (net of amounts capitalized)......... $ 414,000 $ 1,466,000 $ 359,000 $ 7,070,000 ============ ============ =========== =============== Income taxes.......... $ 27,796,000 $ 3,553,000 $ -- $ 385,000 ============ ============ =========== ===============
See accompanying notes. F-6 FCN HOLDING, INC., SABAN ENTERTAINMENT, INC. AND FOX KIDS WORLDWIDE, L.L.C. (FROM AND AFTER THE DATE OF THE REORGANIZATION (NOTE 1), FOX KIDS WORLDWIDE, INC.) STATEMENTS OF CASH FLOW--(CONTINUED) SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTMENT ACTIVITIES Eight months ended June 30, 1996 Amounts payable to a related party of $5,124,000 were forgiven and recorded as contributed capital. The Company accrued $10,000,000 in other assets and amounts payable to related parties in connection with the formation of the L.L.C. A receivable from a related party of $2,700,000 was forgiven and charged to retained earnings. The Company recorded $3,026,000 arising under a tax sharing obligation which was deemed to be contributed capital by the related party. Year ended June 30, 1997 Amounts payable to a related party of $5,835,000 were forgiven and recorded as contributed capital. The Company recorded $4,832,000 arising under a tax sharing obligation which was deemed to be contributed capital by the related party. Three months ended September 30, 1997 Amounts payable to a related party of $1,583,000 were forgiven and recorded to contributed capital. The Company issued a subordinated note to Fox Broadcasting ("FOX") in the amount of $104,573,000 in exchange for FOX's $50,000,000 preferred Class A members interest in the LLC, its $50,000,000 contingent note receivable and certain other Company obligations. Preferred stock in the amount of $345,000,000 was issued in connection with the acquisition of International Family Entertainment, Inc. See accompanying notes. F-7 FCN HOLDING, INC., SABAN ENTERTAINMENT, INC. AND FOX KIDS WORLDWIDE, L.L.C. (FROM AND AFTER THE DATE OF THE REORGANIZATION (NOTE 1), FOX KIDS WORLDWIDE, INC.) NOTES TO COMBINED FINANCIAL STATEMENTS (INFORMATION WITH RESPECT TO SEPTEMBER 30, 1997 AND TO THE THREE MONTH PERIODS ENDED SEPTEMBER 30, 1996 AND 1997 IS UNAUDITED) 1. BASIS OF FINANCIAL STATEMENT PRESENTATION, ORGANIZATION AND RELATED PARTY TRANSACTIONS On November 1, 1995 (the Effective date), FCN Holding, Inc. (FCN Holding) and Saban Entertainment, Inc. (Saban) formed a joint venture, Fox Kids Worldwide, L.L.C. (the LLC), a limited liability company, for the purpose of jointly expanding the worldwide children's' businesses of FCN Holding and Saban. Since the Effective Date, FCN Holding and Saban have been operated by their respective managements subject to the overall supervision of the Members Committee of the LLC. On August 1, 1997, a reorganization (the Reorganization) referred to below was effected pursuant to which Saban, FCN Holding and the LLC became wholly-owned subsidiaries of Fox Kids Worldwide, Inc. (Fox Kids Worldwide or the Company). As a result of the formation of the joint venture and the common management of the joint venture businesses, the respective assets, liabilities and operations of Saban, FCN Holding and the LLC have been combined at historical cost from and after the Effective Date. The combined financial statements of the Company (as the deemed successor to Saban, FCN Holding and the LLC) included herein represent the historical financial statements of FCN Holdings (after giving effect to such combination as of the Effective Date). The combined financial statements of the Company include the balance sheets of FCN Holding, Saban and the LLC at June 30, 1996 and 1997 together with the combined results of operations of FCN Holding, Saban and the LLC since November 1, 1995. The operations of certain foreign subsidiaries of Saban have been combined at May 31, 1996 and 1997 and eight month period ended May 31, 1996 and 1997. Unaudited pro forma combined statements of operations for the period from July 3, 1995 to June 30, 1996, which combine the results of operations of FCN Holding, Saban and the LLC from the beginning of the respective periods are presented below.
PERIOD FROM JULY 3, 1995 TO JUNE 30, 1996 --------------- Pro forma revenues..................... $327,105,000 Pro forma net income................... $ 71,370,000
The Company is an integrated global children's and family entertainment company, which develops, acquires, produces, broadcasts and distributes quality television programming. The Company's principal operations are comprised of (i) Saban, whose library of over 5,300 half-hours of completed and in-production children's programming is among the largest in the world, (ii) the Fox Children's Network, Inc. (FCN), the-top-rated children's (ages 2- 11) oriented broadcast television network in the United States, and (iii) a growing business of Fox Kids-branded cable and direct-to-home (DTH) satellite international channels operating in approximately 25 countries worldwide. The Company is the result of the joint venture (the LLC) formed in 1995 by Fox Broadcasting Company (Fox Broadcasting) and Saban. All significant intercompany transactions and accounts have been eliminated. The Reorganization Fox Kids Worldwide was incorporated in August 1996 as a holding company of FCN Holding, Saban and the LLC. Between August 1996 and August 1997, the Company conducted no business or operations. On August 1, 1997, in connection with the Company's acquisition of a controlling interest in International Family Entertainment, Inc. (IFE), see Note 12, (i) Fox Broadcasting Sub, Inc, Inc., a wholly-owned indirect subsidiary of Fox Broadcasting ("Fox Broadcasting Sub"), exchanged its capital stock in FCN Holding, which indirectly owns FCN, for 7,920,000 shares of Class B Common stock of the Company, (ii) the other stockholder of F-8 FCN HOLDING, INC., SABAN ENTERTAINMENT, INC. AND FOX KIDS WORLDWIDE, L.L.C. (FROM AND AFTER THE DATE OF THE REORGANIZATION (NOTE 1), FOX KIDS WORLDWIDE, INC.) NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED) (INFORMATION WITH RESPECT TO SEPTEMBER 30, 1997 AND TO THE THREE MONTH PERIODS ENDED SEPTEMBER 30, 1996 AND 1997 IS UNAUDITED) FCN Holding exchanged its capital stock in FCN Holding for an aggregate of 160,000 shares of Class A Common Stock of the Company, (iii) Haim Saban and the other stockholders of Saban (together, the "Saban Stockholders") exchanged their capital stock of Saban for an aggregate of 7,920,000 shares of the Class B Common Stock of the Company, and (iv) all outstanding management options to purchase Saban capital stock became options to purchase an aggregate of 646,548 shares of the Class A Common Stock of the Company. In addition, as described more fully below under Other Related Party Transactions --the "FBC Subordinated Note," Fox Broadcasting exchanged its preferred, non-voting interest in the LLC and its $50 million contingent note receivable from the LLC for a new $108.6 million subordinated pay in kind note from the Company due March 2008 bearing interest at 11.8%. As a result of these transactions, which are referred to as the "Reorganization," FCN Holding, FCN, Saban and the LLC became direct or indirect wholly-owned subsidiaries of the Company. Acquisition of International Family Entertainment, Inc. On August 1, 1997, the Company acquired a 50.7% interest in IFE through the purchase for $35.00 per share of the stock owned by M.G. "Pat" Robertson, Tim Robertson and certain trusts of which they are trustees, The Christian Broadcasting Network, Inc. ("CBN") and Regent University (together, the "Privately Owned Shares") and the exchange by Liberty IFE, Inc. ("Liberty IFE") of all of the IFE stock owned by it and $23 million principal amount of 6% Convertible Secured Notes due 2004 of IFE (the "Convertible Notes") (which have since been retired) for shares of Series A Preferred Stock of the Company. On September 4, 1997, the Company consummated a merger to acquire the remaining shares of IFE from the public shareholders. Total consideration for the IFE Acquisition was approximately $1.9 billion including assumption of liabilities. The Company paid approximately $545 million for the Privately Owned Shares and issued $345 million of its Series A Preferred Stock to Liberty IFE as payment for the IFE stock and the Notes. The balance of the consideration was paid to acquire the publicly traded shares through the merger, to cash out existing options to acquire shares of IFE stock held by IFE senior executives and employees, and to assume IFE's existing bank debt, which has since been retired. The Company financed the IFE Acquisition, in part, by borrowing $1.25 billion pursuant to the Existing Credit Facility as described below. On August 1, 1997, the Company borrowed $602 million under the Existing Credit Facility to finance the purchase price of the Privately Owned Shares (and to refinance certain indebtedness of Saban outstanding on the closing date of the acquisition of the Privately Owned Shares). On September 4, 1997, the Company borrowed $648 million under the Existing Credit Facility in order to finance in part the cash consideration payable to the remaining former public holders of the outstanding shares of IFE stock for their shares in the merger, to cash out existing options held by IFE senior executives and employees, to refinance certain indebtedness of IFE and to pay certain related fees and expenses. IFE historically operated in three business segments: the operation of advertiser-supported cable networks ("Cable Networks"), the production and distribution of entertainment programming ("Production & Distribution"), and the production of live entertainment shows ("Live Entertainment"). The Company contemplates that it will continue to operate IFE's The Family Channel as the Fox Family Channel but will sell all of IFE's interests in its other cable and international networks not directly related to The Family Channel. In addition, the Company intends to sell IFE's Production and Distribution and Live Entertainment businesses. Related Party Transactions in Connection with the Formation of the LLC and the Subsequent Reorganization As described more fully below, in connection with the formation of the LLC and the subsequent Reorganization, various corporate affiliates of Fox Broadcasting transferred certain distribution rights and other F-9 FCN HOLDING, INC., SABAN ENTERTAINMENT, INC. AND FOX KIDS WORLDWIDE, L.L.C. (FROM AND AFTER THE DATE OF THE REORGANIZATION (NOTE 1), FOX KIDS WORLDWIDE, INC.) NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED) (INFORMATION WITH RESPECT TO SEPTEMBER 30, 1997 AND TO THE THREE MONTH PERIODS ENDED SEPTEMBER 30, 1996 AND 1997 IS UNAUDITED) contractual rights to the LLC, made a cash loan to the LLC and committed to provide certain administrative services to FCN Holding on an on-going basis. In consideration, Fox Broadcasting is entitled to receive payment of its loan and certain other cash distributions in priority to the common stockholders of the Company. FCN and Fox Broadcasting are parties to an Administration Agreement, dated as of February 7, 1990, pursuant to which Fox Broadcasting agreed to provide the following services to FCN: network national advertising sales and the administration thereof, commercial trafficking and broadcasting operations (including all uplink, transponder and other facilities necessary to deliver via satellite Fox Kids Network programming for broadcast to the Fox Kids Network Affiliates (defined below)) and overhead charges related to Fox Broadcasting's in-house administrative support in the areas of research, promotion, business affairs, legal affairs and accounting. FCN agreed to pay to Fox Broadcasting a fee equal to 15% of 100% of the net advertising revenue (gross advertising revenue less advertising agency commissions) derived with respect to national commercials, commercial material or other advertising material included or used in connection with any of the programs exhibited on the Fox Kids Network. On December 22, 1995, in connection with the terms of the LLC, this agreement, and all rights of Fox Broadcasting to receive management fees on or subsequent to June 1, 1995, were assigned to the LLC by the Fox Parties. Concurrently, the Company agreed to pay to Fox Broadcasting a fee of $10 million for providing these services and such amount is included in other assets. In September 1996, the Company paid this fee and, immediately upon receipt of this $10 million payment, Fox Broadcasting made a contribution to the LLC of $10 million in exchange for additional Preferred Class A Members Interest, described above. Fox Broadcasting continues to be obligated to provide the services described above and estimates the incremental costs for providing these services to the Company to be $2,200,000 per annum. Accordingly, the Company is amortizing the $10 million fee over approximately five years, representing the period over which the value of the services is estimated to be incurred, and has recorded amortization expense of $1,467,000 and $2,200,000 for the eight months ended June 30, 1996 and the twelve months ended June 30, 1997, respectively. Fox Broadcasting believes that these estimates were made on a reasonable basis. However, these estimates may not necessarily be indicative of the level of expenses that might have been incurred had the Company operated on a stand-alone basis. Fox Broadcasting has not made a study or any attempt to obtain quotes from third parties to determine what the costs of obtaining such services from third parties would have been. Pursuant to terms of the affiliation agreements (Agreements) among the Company, Fox Broadcasting and substantially all of its affiliated television stations (Fox Kids Network Affiliates), the Fox Kids Network Affiliates, including owned and operated television stations of certain affiliates of Fox Broadcasting (Fox O&O's) are entitled to compensation which is equal to 100% of FCN's programming Net Profits (as defined below). Amounts payable under these compensation arrangements are due quarterly in amounts derived pursuant to the provisions in the Agreements. "Net Profits" is defined on a cumulative basis to include amounts actually received by FCN from the exhibition, distribution and other exploitation of the Company's programs and the merchandising and other rights relating thereto, less administrative fees, production/license fees, distribution and merchandising fees (including those payable to the Company), overhead and other expenses and reserves. Certain of the Fox O&O's have waived in favor of the Company their rights to receive these participations. In addition to assigning to the LLC the agreements and Net Profit participations referred to above, Fox Broadcasting agreed that the net cash flow to the LLC from such agreements and participations for the twelve months ended June 30, 1996 would be a minimum of $35,755,000. For the eight months ended June 30, 1996, the Company recorded $16,611,000 as a decrease in expenses. The remaining balance of $19,144,000 was recorded as a capital contribution. Subsequent to June 30, 1996, the outstanding balance was paid. For the year ended June 30, 1997 such amounts totaled $20,508,000 and was recorded as a decrease in expenses. F-10 FCN HOLDING, INC., SABAN ENTERTAINMENT, INC. AND FOX KIDS WORLDWIDE, L.L.C. (FROM AND AFTER THE DATE OF THE REORGANIZATION (NOTE 1), FOX KIDS WORLDWIDE, INC.) NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED) (INFORMATION WITH RESPECT TO SEPTEMBER 30, 1997 AND TO THE THREE MONTH PERIODS ENDED SEPTEMBER 30, 1996 AND 1997 IS UNAUDITED) In connection with the formation of the LLC, Fox Broadcasting made a $64.5 million interest free loan to the LLC, of which $14.5 million of the loan was repaid in September 1996. The $50 million balance of this loan must be paid out of Distributable Cash (as defined below) of the LLC before any distributions are made on the Class A and Class B Members Interest. Distributable Cash means the amount of cash available for distribution by the LLC (including cash available from Saban and FCN Holding), taking into account all cash, debts, liabilities and obligations of the LLC then due and after setting aside reserves to provide for the LLC's capital expenditures, debt service, working capital and expansion plans (Distributable Cash). In addition to the priority distributions described in the paragraph above, in connection with the formation of the LLC, Fox Broadcasting was also granted a priority right to receive distributions of Distributable Cash and other distributions until it receives aggregate distributions in an amount equal to $40 million. As described above, in September 1996, Fox Broadcasting purchased, for $10 million cash, an additional $10 million of Class A Members Interest. In connection with the Reorganization, Fox Broadcasting contributed to the Company, pursuant to an Agreement regarding Transfer of LLC Interests, the note receivable from the LLC representing the $50 million remainder of the loan and the Class A Members Interest in exchange for a note from the Company (see Other Related Party Transactions--the "Fox Subordinated Note"). The $40 million difference between the carrying value of the Class A Members Interest and the liquidation value has been charged against retained earnings. Pursuant to an agreement, dated December 22, 1995, between the LLC and the stockholders of Saban, the LLC was granted an option to purchase, upon the occurrence of certain events, all of the Class B Common Stock held by the stockholders of Saban, and any of their transferees (Stock Ownership Agreement). The option may be exercised as follows: (i) for a period of one year following the death of Haim Saban, if he dies prior to December 22, 2012; (ii) upon delivery of written notice by Fox Broadcasting at any time on or after December 22, 2002 or before December 22, 2012; or (iii) upon receipt by Fox Broadcasting of written notice (which generally cannot be delivered prior to December 22, 2000) from Haim Saban of his desire to cause Fox Broadcasting to purchase all of the shares of Class B Common Stock held by the former stockholders of Saban. The LLC paid to the stockholders of Saban an aggregate of $80.1 million for payment under the Stock Ownership Agreement. The purchase price formula under the option is based on the fair market value of the Company. In September 1996 the LLC distributed the Stock Ownership Agreement to FCN Holding, which immediately distributed that agreement to Fox Broadcasting Sub. As part of the closing of the formation of the LLC, Saban, the Saban Stockholders, Fox Broadcasting, FCN Holding and one of its subsidiaries entered into a Strategic Stockholders Agreement which provided, among other things, for restrictions on transfer of the stock held by the parties, certain voting rights between them, as well as the terms of the Reorganization. The parties to the Strategic Stockholders Agreement also agreed to provide Haim Saban and the Saban Stockholders and Fox Broadcasting certain registration rights. On August 1, 1997, the Strategic Stockholders Agreement was amended and restated to add provisions regarding voting rights between Fox Broadcasting and the former Saban Stockholders. As part of the Amended and Restated Strategic Stockholders Agreement, dated August 1, 1997, Haim Saban agreed with Fox Broadcasting Sub as follows: if the Company is unable to meet its obligations (i) to pay any dividend under the terms of the Series A Preferred Stock or to redeem the Series A Preferred Stock, (ii) under its lease of 10960 Wilshire Boulevard, Los Angeles, California, or any obligation guaranteed by The News Corporation Limited (News Corp.), the parent of Fox Broadcasting, or (iii) under the Funding Agreement dated F-11 FCN HOLDING, INC., SABAN ENTERTAINMENT, INC. AND FOX KIDS WORLDWIDE, L.L.C. (FROM AND AFTER THE DATE OF THE REORGANIZATION (NOTE 1), FOX KIDS WORLDWIDE, INC.) NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED) (INFORMATION WITH RESPECT TO SEPTEMBER 30, 1997 AND TO THE THREE MONTH PERIODS ENDED SEPTEMBER 30, 1996 AND 1997 IS UNAUDITED) as of June 11, 1997, and either News Corp. or News Publishing Australia Limited ("NPAL") provides funds to the Company, the advance shall be treated as a loan, or if Citicorp USA, Inc., in its sole discretion, as administrative agent under the Existing Credit Facility, determines it is unacceptable to treat the advance as a loan, the advance will be treated as preferred stock. To the extent the advance is treated as a loan and the amount exceeds $50 million, if the advance is not repaid after 18 months (or 12 months for all advances after the third anniversary of the agreement), all or any portion of the advance in excess of $50 million may be converted into shares of Class B Common Stock. If Fox Broadcasting Sub elects to convert any portion of the advance into Class B Common Stock, Haim Sabam shall have the right to purchase from Fox Broadcasting Sub up to 50% of the number of shares of Class B Common Stock issued pursuant to the conversion. If instead, the advance is treated as preferred stock, the first $50 million of the advance shall be applied to the issuance of shares of Series B Preferred Stock, and the remainder of the advance shall be applied to the issuance of Series C Convertible Preferred Stock which is convertible into Class B Common Stock at the election of the holder. The Series B and Series C Preferred Stock shall be entitled to dividends at an annual rate of 11.7% of its liquidation preference. Each of the Series B and Series C Preferred Stock shall have a liquidation preference equal to $100,000 per share. The Series B and Series C Preferred Stock shall be entitled to dividends at an annual rate of 11.7% of its liquidation value. If Fox Broadcasting Sub elects to convert the Series C Convertible Preferred Stock into Class B Common Stock, Haim Saban shall have the right to purchase up to 50% of the number of shares of Class B Common Stock issued pursuant to the conversion. Notwithstanding the agreements, News Corp. has no obligation to make any advances, and the Company has no obligation to accept any amounts from News Corp. Other Related Party Transactions Receivables from related parties include advances of $1,329,000 at June 30, 1996 and 1997 to certain non-stockholder officers and directors of the Company. The Company distributes product to related parties in the normal course of business, and accordingly, included in Amounts Receivable from Related Parties are $3,119,000 (1996) and $12,965,000 (1997) due from those related parties. Saban and Fox Broadcasting are parties to a Barter Syndication Agreement dated as of January 5, 1996, pursuant to which Saban engaged Fox Broadcasting to provide barter advertising sales for the 1996-1997 and 1997-1998 broadcast season for the Saban Kids Network. Fox Broadcasting's services include advertising sales, sales administration, account maintenance, ratings, processing, credit and collection, sales data entry and reporting, and commercials broadcast standards and practices. In consideration for the services rendered by Fox Broadcasting to Saban, Saban has agreed to pay Fox Broadcasting a barter advertising sales fee of $800,000 for the 1996-1997 broadcast season and $840,000 for the 1997-1998 broadcast season. Related companies of Fox Broadcasting have funded certain of the operations of the Company from its inception through loans to the Company. Amounts due to the related companies of Fox Broadcasting in connection therewith, including interest, totaled $7,071,000 and $8,672,000 at June 30, 1996 and 1997, respectively. F-12 FCN HOLDING, INC., SABAN ENTERTAINMENT, INC. AND FOX KIDS WORLDWIDE, L.L.C. (FROM AND AFTER THE DATE OF THE REORGANIZATION (NOTE 1), FOX KIDS WORLDWIDE, INC.) NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED) (INFORMATION WITH RESPECT TO SEPTEMBER 30, 1997 AND TO THE THREE MONTH PERIODS ENDED SEPTEMBER 30, 1996 AND 1997 IS UNAUDITED) In October 1996, the Company commenced operations of Fox Kids U.K., a cable and satellite channel broadcasting from 6 a.m. to 7 p.m. each day. The channel is currently broadcast via analogue transponder. The channel is distributed as part of British Sky Broadcasting, Group plc's ("BSkyB") Sky Multichannels DTH package in the United Kingdom and the Republic of Ireland. News Corp. holds a 40% interest in BSkyB, a public company, which operates the leading pay television broadcasting service in the United Kingdom and the Republic of Ireland. The Fox Kids U.K. channel is also distributed via cable over a number of systems, the largest of which are the systems operated by Comcast. Discussions are also at an advanced stage with other major cable operators. However, due to lack of capacity and the pre-existence of four other children's channels, carriage is not guaranteed. As part of its agreement with BSkyB, the Company acquired for approximately $3.7 million, all of BSkyB's United Kingdom license rights to children's programming which had been acquired for broadcast by BSkyB prior to the launch of this channel. Additionally, as part of the agreement with BSkyB, the Company has entered into an analog transponder sublease agreement whereby the Company will lease the analog transponder from BSkyB through February 1, 2001 subject to extension in certain circumstances requiring a financial commitment of approximately $28,188,000. The Company has also entered into a digital transponder and uplink sublease agreement with BSkyB whereby the Company will lease the digital transponder from BSkyB for eight years from the analog launch date requiring an annual financial commitment of approximately $1,115,000 per channel subject to reduction in certain circumstances. Further, as part of this arrangement with BSkyB, BskyB shall provide support services for the sale by the Company of programming sponsorship, advertising and other air-time for broadcast on the channel as well as other operational and facilities support services. In consideration for the services being provided to the Company, BSkyB shall be entitled to receive a fee equal to 15% of Net Revenue, as defined in the agreement, plus a 5% bonus commission where Net Revenue exceeds mutually pre-agreed annual targets plus an annual fee of approximately $326,000, subject to adjustment in certain circumstances. In November 1996, the Company launched Fox Kids Latin America ("FKLA"), a Fox Kids branded pan-regional Latin American channel, which simultaneously broadcasts animated and live-action programming in Spanish, Portuguese and English. The Company has entered into a cost sharing arrangement for employees and service support in connection with the operation of the channel with Canal Fox, a related party. The Company believes that such arrangement for employees and service support are at rates which approximate fair market value. Foxtel, an Australian-based cable service, has carried a Fox Kids Network children's channel segment since 1994 under a license agreement between Foxtel and an affiliate of Fox Broadcasting. This license was assigned to the Company. Foxtel is a 50/50 partnership between News Corp. and the Australian telephone company, Telstra. From time to time, Saban has loaned and advanced funds to Haim Saban. In connection with the formation of the LLC on December 22, 1995, Saban forgave in full the loan plus accrued interest owing from Haim Saban in the amount of approximately $2,700,000. This amount was treated as a distribution and charged to retained earnings in the eight months ended June 30, 1996. In connection with Haim Saban's employment agreement, dated December 22, 1995, with the LLC, the LLC agreed to reimburse Haim Saban for all out-of-pocket costs and expenses for domestic and international travel, including private air charter which may include aircraft owned directly or indirectly by Haim Saban. Saban has entered into a contract with the agency which leases Mr. Saban's airplane to charter from that agency Mr. Saban's or another similar airplane for a minimum of fifty F-13 FCN HOLDING, INC., SABAN ENTERTAINMENT, INC. AND FOX KIDS WORLDWIDE, L.L.C. (FROM AND AFTER THE DATE OF THE REORGANIZATION (NOTE 1), FOX KIDS WORLDWIDE, INC.) NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED) (INFORMATION WITH RESPECT TO SEPTEMBER 30, 1997 AND TO THE THREE MONTH PERIODS ENDED SEPTEMBER 30, 1996 AND 1997 IS UNAUDITED) charter hours during a twelve month period. For the eight months ended June 30, 1996 and the twelve months ended June 30, 1997, Saban has paid approximately $370,000 and $875,000, respectively, for such services. Saban currently leases and distributes its entertainment properties (e.g., motion pictures, television programs, merchandising and licensing rights) in Israel through Duveen Trading Ltd. (Distributor), a corporation wholly-owned by Haim Saban's brother. The term of the agreement extends through December 31, 1997, subject to extension by Saban for an additional three years. The Company currently intends to extend this relationship. At June 30, 1996 and 1997, the Company was due $500,000 under this agreement. In September 1994, Saban entered into a music services agreement (the "Music Agreement") with Haim Saban, which agreement was amended in June 1995 and assigned to a corporation wholly-owned by Mr. Saban in January 1996. Under the terms of the Music Agreement, all original theme music, underscores, cues and songs for use in all programming produced by Saban will be supplied to Saban through Mr. Saban. Saban is entitled to license third-party musical compositions for use in its programming so long as such compositions neither are used as opening or closing themes nor constitute more than 15% of the total musical content of any program or episode, without Mr. Saban's prior written consent. Saban has the royalty-free right to use the compositions in articles of merchandise such as home video units, video games and interactive toys. Saban has been granted the non-exclusive, worldwide, and perpetual license to (i) synchronize and perform compositions in theatrical motion pictures and (ii) synchronize compositions in all other forms of programming. Saban creates and owns all right, title and interest in master recordings of compositions for use in Saban's programming, and Saban owns the proceeds derived from all forms of exploitation thereof. In consideration for the provision of the compositions to Saban, Mr. Saban is entitled to receive all publishing income, directly or through Saban, in connection with the exploitation of such compositions. Saban is entitled to reimbursement from Mr. Saban of certain costs associated with the creation of the compositions. For the year ended June 30, 1997, Mr. Saban paid approximately $374,000 to Saban for reimbursement of costs to Saban. For the eight months ended June 30, 1996, Mr. Saban made no payments for reimbursement of costs to Saban. At June 30, 1996, Saban owed Mr. Saban approximately $262,000 pursuant to the Music Agreement. At June 30, 1997, approximately $211,000 was owed to Saban by Mr. Saban pursuant to the Music Agreement. Saban is party to an agreement with Fox Family Films, Inc. ("Distributor") for the distribution in Spring 1997 of Turbo: A Power Rangers Movie, a "PG- rated" sequel to the original Mighty Morphin Power Rangers motion picture (the "Sequel"), which was released theatrically in the United States in Spring 1997 and in home video in late Summer 1997. Under the terms of the agreement, Saban produced and delivered the Sequel to Distributor for worldwide distribution and granted to Distributor all rights necessary to advertise, promote, publicize and distribute the Sequel. Distributor will hold in perpetuity worldwide theatrical, non-theatrical, home video, and television rights in the movie (except for the territories of Japan and certain Asian territories and Israel). Saban will hold the copyright to the Sequel as well as certain rights including, without limitation, merchandising, television series, stage, publication, radio, theme park and touring, music publishing and soundtrack. Commercial tie-in rights will be mutually controlled by Saban and Distributor. Saban will receive 100% of gross receipts after certain distribution fees and expenses are deducted, based upon a formula set forth in the agreement. Saban is party to six program exhibition agreements for the 1996-1997 broadcast season with FOX Television and one with FoxNet, both subsidiaries of Fox Broadcasting, pursuant to which Saban licenses certain of FOX Television's owned and operated stations and the FoxNet cable television service the right to broadcast certain series which are part of the Saban Kids Network. All series are licensed on a barter basis. F-14 FCN HOLDING, INC., SABAN ENTERTAINMENT, INC. AND FOX KIDS WORLDWIDE, L.L.C. (FROM AND AFTER THE DATE OF THE REORGANIZATION (NOTE 1), FOX KIDS WORLDWIDE, INC.) NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED) (INFORMATION WITH RESPECT TO SEPTEMBER 30, 1997 AND TO THE THREE MONTH PERIODS ENDED SEPTEMBER 30, 1996 AND 1997 IS UNAUDITED) In October 1997, the Company reached an agreement in principle with Fox/Liberty Networks, LLC a joint venture between News Corp. and Liberty Media Corporation, a wholly owned subsidiary of Tele-Communications, Inc., to sell a majority ownership interest in Fit TV to Fox/Liberty Networks, LLC. The Company acquired Fit TV in September 1997 as part of the IFE Acquisition. In January 1997, the Company obtained from Fox Television, a division of Fox, Inc. ("Fox Television"), distribution rights to the New World Communications Group Incorporated's ("New World") animation library of children's programming, which Fox Television acquired as part of its purchase of New World. During the year ended June 30, 1997, the Company spent approximately $726,000 in distribution costs in connection with this product which will be recoupable against New World's share of revenues. At June 30, 1997, such amount is included in accounts receivable from related parties. The Company is in discussions with FOX Television to acquire the New World animation library. In October 1997, the Company entered into an interim agreement with Twentieth Century Fox Film Corp. ("Twentieth Century Fox"), pursuant to which Twentieth Century Fox will distribute the programming library of MTM Entertainment, one of the assets acquired in the IFE Acquisition. The Company is in discussions with Twentieth Century Fox to sell MTM to Twentieth Century Fox. As part of the Reorganization, on July 31, 1997, the Company issued a subordinated promissory pay in kind note (the "Fox Subordinated Note") to Fox Broadcasting in the principal amount of approximately $104 million, which amount will be increased to $108.6 million (exclusive of any capitalized interest) and which is to be repaid in May 2008. The parties recently have agreed to restate the Fox Subordinated Note to reflect a change in the interest rate, effective as of the date of issuance. As restated, interest on the Fox Subordinated Note will accrete quarterly at the rate of 10.427% per annum. At any time after the Existing Credit Facility or the Amended Credit Facility, as applicable, has been paid in full, the Company may prepay the Fox Subordinated Note in whole or in part, subject to the terms of the Indentures. On August 29, 1997, in connection with the IFE Acquisition, the Company issued a subordinated promissory pay in kind note to News America Holdings Incorporated (the "NAHI Bridge Note"), upon substantially the same terms and conditions as the Fox Subordinated Note including maturity dates, except that the NAHI Bridge Note has a principal amount of $345.5 million. The parties recently have agreed to restate the NAHI Bridge Note to reflect a change in the interest rate, effective as of the date of issuance. As restated, the NAHI Bridge Note will accrete interest at a rate of approximately 10.427% per annum. The payment of principal and interest under both the Fox Subordinated Note and the NAHI Bridge Note is subordinated in right to the obligations of the Company under the Existing Credit Facility. On August 1, 1997, Saban entered into an amendment to the lease for its corporate headquarters at 10960 Wilshire Boulevard in Los Angeles (the original lease dated July 17, 1995 together with the amendment, the "Lease"). The amendment provides for an annual base rent for the entire premises of $620,505 through February 15, 2002 and $676,915 from February 16, 2002 through March 31, 2006. Pursuant to a Guaranty of Lease entered into on August 1, 1997 (the "Guaranty"), News Corp. and NPAL have guaranteed certain of Saban's obligations under the Lease. The Guaranty continues until Saban has paid all obligations due under the Lease. Under the Guaranty, News Corp. and NPAL are liable, jointly and severally, for any amounts not paid by Saban. News Corp.'s and NPAL's aggregate liability under the Guaranty is limited to approximately $8.6 million, to be reduced annually over five years on a straight-line basis. In May 1996, Saban entered into an agreement in principle with Fox Video (the "Fox Video Agreement") for the production and distribution of a live- action feature film for the home video market based upon the animated character of Casper (the "Film") which was released by Fox Video in the United States on September 9, 1997. The distribution term runs through September 8, 2004. Pursuant to the Fox Video Agreement, F-15 FCN HOLDING, INC., SABAN ENTERTAINMENT, INC. AND FOX KIDS WORLDWIDE, L.L.C. (FROM AND AFTER THE DATE OF THE REORGANIZATION (NOTE 1), FOX KIDS WORLDWIDE, INC.) NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED) (INFORMATION WITH RESPECT TO SEPTEMBER 30, 1997 AND TO THE THREE MONTH PERIODS ENDED SEPTEMBER 30, 1996 AND 1997 IS UNAUDITED) Saban developed, produced and delivered the Film to Fox Video. Saban has the right and obligation to market, distribute (for no fee) and exploit the Film in all forms of television, non-theatrical and airline markets. Fox Video has the right and obligation to market, manufacture, package, distribute (for no fee) and exploit the Film in home video formats, and will release the Film in major international territories during the next six months. Saban and Fox Video each contributed one-half of the production costs of the Film subject to the rights of both parties to recoup certain of these costs. Saban and Fox Video will share the television net income 55% and 45%, respectively, and the home video net income 45% and 55%, respectively, subject to the participation rights of the Harvey Entertainment Company, which holds the copyright to Casper. In August 1996, Fox Video and Saban entered into a Home Video Rights Acquisition Agreement pursuant to which Saban granted to Fox Video the exclusive home video rights to distribute English and Spanish language versions throughout the United States and to distribute English language versions throughout Canada of certain of its programs, all television programs produced for children and owned or controlled by Saban or FCN, all television programs produced or to be produced pursuant to an agreement with Marvel and all television programs which are owned or controlled first by Marvel and subsequently by Saban, the LLC or the Company. The beginning of the term of this agreement varies by type of program, but the term ends as to all programs between seven and nine years from September 11, 1996. Saban is required to make available for release by Fox Video a minimum of six video titles each year, at least two of which will not have been previously released for home video distribution in any of the territories covered by the agreement. In consideration for the grant of the distribution rights, Fox Video has agreed to pay Saban 50% of gross receipts from these home videos, after deduction of certain expenses. In connection with this Agreement Saban received $8,000,000. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Fiscal Year-End The Company's fiscal year ends on June 30. Interim Financial Information The unaudited consolidated financial statements as of September 30, 1997, and for the three months ended September 30, 1997 and the unaudited combined financial statements for the three months ended September 30, 1996, include, in the opinion of management, all adjustments (consisting of normal recurring adjustments) necessary to present fairly the Company's consolidated/combined financial position, results of operations and cash flows. Operating results for the three months ended September 30, 1997, are not necessarily indicative of the results that may be expected for the year ended June 30, 1998. Revenue Recognition Advertising revenue is recognized as earned in the period in which the advertising commercials are telecast. Revenues from television, music, and merchandising lease agreements, which provide for the receipt by the Company of nonrefundable guaranteed amounts, are recognized when the lease period begins, collectibility is reasonably assured and the product is available pursuant to the terms of the lease agreement. Amounts in excess of minimum guarantees under these lease agreements are recognized when earned. Amounts received in advance of recognition of revenue are recorded as deferred revenue. FCN Holding generally provides advertisers with guaranteed ratings in connection with its domestic network broadcasts. Revenue is recorded net of estimated F-16 FCN HOLDING, INC., SABAN ENTERTAINMENT, INC. AND FOX KIDS WORLDWIDE, L.L.C. (FROM AND AFTER THE DATE OF THE REORGANIZATION (NOTE 1), FOX KIDS WORLDWIDE, INC.) NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED) (INFORMATION WITH RESPECT TO SEPTEMBER 30, 1997 AND TO THE THREE MONTH PERIODS ENDED SEPTEMBER 30, 1996 AND 1997 IS UNAUDITED) shortfalls, which are settled either by additional advertising time ("make goods") or cash refunds to the advertiser. FCN Holding accounts for the full amount of the estimated shortfall. Subscriber revenue is recognized by the international channels monthly based upon the reported level of subscribers. Barter revenues, representing the exchange of programming for advertising time on a television station, are recognized upon the airing of an advertisement during such advertising time and related program costs are amortized in accordance with the individual film forecast method. Production and Programming Costs Programming costs, consisting of direct production costs, acquisition of story rights, costs to acquire distribution rights, allocable production overhead, interest and exploitation costs (which benefit future periods) are capitalized as incurred. The individual film forecast method is used to amortize programming costs in which the Company owns or controls distribution rights. Costs accumulated in the production of a program are amortized in the proportion that gross revenues realized bear to management's estimate of the total gross revenues expected to be received. Estimated liabilities for residuals and participations are accrued and expensed in the same manner as programming cost inventories are amortized. Production and programming costs also include the use of satellite transponders and costs associated with engineering and technical support services in connection with the international channels. For programs in which the Company acquires only network broadcast rights, the Company amortizes such program costs over the estimated number of telecasts. The Company evaluates its programming rights for possible changes in the estimated number of telecasts or the possibility of impairment. Revenue estimates on a program-by-program basis are reviewed periodically by management and are revised, if warranted, based upon management's appraisal of current market conditions. Based on this review, if estimated future gross revenues from a program are not sufficient to recover the unamortized costs, the unamortized programming cost will be written down to net realizable value. Concentration of Credit Risk Financial instruments which potentially subject the Company to concentration of credit risk consist principally of temporary cash investments and trade receivables. The Company places its temporary cash investments with high credit quality financial institutions or in a mutual fund which invests in government securities and therefore are subject to reduced risk. The Company has not incurred any losses relating to these investments. The Company leases its product to distributors and broadcasters throughout the world. The Company performs periodic credit evaluations of its customers' financial condition and generally does not require collateral. Generally, payment is received in full or in part prior to the Company's release of product to such distributors and broadcasters. At June 30, 1997 and June 30, 1996, substantially all of the Company's trade receivables were from customers in the entertainment or broadcast industries or from advertising agencies. Receivables generally are due within 30 days. Credit losses relating to customers in the entertainment and broadcast industries or advertising agencies consistently have been within management's expectations. Cash and Cash Equivalents For the purposes of balance sheet classification and the statement of cash flows, the Company considers all highly liquid investments that are both readily convertible into cash with maturities when purchased of three months or less to be cash equivalents. F-17 FCN HOLDING, INC., SABAN ENTERTAINMENT, INC. AND FOX KIDS WORLDWIDE, L.L.C. (FROM AND AFTER THE DATE OF THE REORGANIZATION (NOTE 1), FOX KIDS WORLDWIDE, INC.) NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED) (INFORMATION WITH RESPECT TO SEPTEMBER 30, 1997 AND TO THE THREE MONTH PERIODS ENDED SEPTEMBER 30, 1996 AND 1997 IS UNAUDITED) Restricted Cash Restricted cash represents amounts held by financial institutions as collateral on outstanding debt. Financial Instruments Financial instruments are carried at historical cost which approximates fair value. Property and Equipment Property and equipment are carried at cost and depreciation is compounded using the straight-line method over their estimated useful lives of three to five years. Leasehold improvements are amortized over the lesser of the term of the lease or the estimated useful lives of the improvement using the straight-line method. Foreign Currency Translation and Cumulative Adjustment Saban International N.V. (SINV), which after the Effective Date is deemed to be a wholly-owned subsidiary of the Company, uses the U.S. dollar as the functional currency. All other foreign subsidiaries of the Company use local currency as the functional currency. Assets and liabilities are translated into U.S. dollars at current exchange rates. Revenue and expenses have been translated into U.S. dollars based generally on the average rates prevailing during the period. Gains and losses arising from foreign currency transactions are included in determining net income for the period. The aggregate transaction (losses) gains for the eight months ended June 30, 1996 and the year ended June 30, 1997 were $132,000 and $(643,000), respectively. The cumulative translation adjustment in stockholders' equity at June 30, 1996 and 1997, represents the Company's net unrealized exchange losses on the translation of foreign subsidiaries' financial statements. Income Taxes The Company provides for income taxes based on the liability method. Under this method, deferred tax assets and liabilities are determined based on differences between financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. 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 the financial statements and accompanying notes including amortization of programming costs. Actual results could differ from those estimates. Management periodically reviews and revises its estimates of future airings and revenues, as necessary, which may result in revised amortization of its programming costs. Results of operations may be significantly affected by the periodic adjustments in such amortization. Stock-Based Compensation The Company accounts for its stock compensation arrangements under the provisions of Accounting Principles board No. 25, "Accounting for Stock Issued to Employees," and intends to continue to do so. F-18 FCN HOLDING, INC., SABAN ENTERTAINMENT, INC. AND FOX KIDS WORLDWIDE, L.L.C. (FROM AND AFTER THE DATE OF THE REORGANIZATION (NOTE 1), FOX KIDS WORLDWIDE, INC.) NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED) (INFORMATION WITH RESPECT TO SEPTEMBER 30, 1997 AND TO THE THREE MONTH PERIODS ENDED SEPTEMBER 30, 1996 AND 1997 IS UNAUDITED) Advertising Costs Included in selling, general and administrative expenses are advertising expenses amounting to $2,401,000 and $9,732,000 for the eight months ended June 30, 1996 and the year ended June 30, 1997, respectively. Net Income (Loss) per Common Share The per share data is based upon 16,000,000 shares deemed to be outstanding during each period which represents the number of shares of common stock that would have been outstanding had the Reorganization described in Note 1 occurred on November 1, 1995. Common equivalent shares consisting of outstanding stock options are included in the calculation to the extent they are dilutive. For the three months ended September 30, 1997 (unaudited), the net loss per common share gives effect to dividends on the Series A Preferred Stock which amounted to $5,189,000. In February 1997, the Financial Accounting Standards Board ("FASB") issued SFAS No. 128, Earnings Per Share, which is effective for annual and interim financial statements issued for periods ending after December 15, 1997 and early adoption is not permitted. When adopted, the statement will require restatement of prior years' earnings per share ("EPS"). SFAS No. 128 was issued to simplify the standards for calculating EPS previously found in APB No. 15, Earnings Per Share. SFAS 128 replaces the presentation of primary EPS with a presentation of basic EPS. The new rules also require dual presentation of basic and diluted EPS on the face of the statement of operations for companies with a complex capital structure. For the Company, basic EPS will exclude the dilutive effects of stock options and warrants. Diluted EPS for the Company will reflect all potential dilutive securities. Under the provisions of FAS 128, basic and diluted EPS would have been the same as the amounts reported herein. NEW ACCOUNTING PRONOUNCEMENTS In June 1997, the FASB issued Statement No. 130, Reporting Comprehensive Income. The Statement establishes standards for the reporting and display of comprehensive income and its components in a full set of general purpose financial statements. The Statement applies to all enterprises that provide a full set of general-purpose financial statements. The Statement becomes effective for all financial statements for fiscal years beginning after December 15, 1997, with earlier application permitted. Further, in June 1997, the FASB issued Statement No. 131, Disclosures about Segments of an Enterprise and Related Information. The Statement changes the way public companies report segment information in annual financial statements and also requires those companies to report selected segment information in interim financial reports to shareholders. The proposal supersedes FASB Statement No. 14 on segments and does not apply to nonpublic enterprises or to not-for-profit organizations. The Statement becomes effective for all financial statements for fiscal years beginning after December 15, 1997, with earlier adoption permitted. The Company is currently reviewing those Statements and will apply such provisions as deemed appropriate. F-19 FCN HOLDING, INC., SABAN ENTERTAINMENT, INC. AND FOX KIDS WORLDWIDE, L.L.C. (FROM AND AFTER THE DATE OF THE REORGANIZATION (NOTE 1), FOX KIDS WORLDWIDE, INC.) NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED) (INFORMATION WITH RESPECT TO SEPTEMBER 30, 1997 AND TO THE THREE MONTH PERIODS ENDED SEPTEMBER 30, 1996 AND 1997 IS UNAUDITED) 3. PROGRAMMING COSTS Programming costs, net of accumulated amortization, are comprised of the following:
JUNE 30, 1996 ---------------------------------------- NET ACCUMULATED PROGRAMMING COST AMORTIZATION COSTS -------------- ------------ ------------ Children's programming............ $ 694,690,000 $589,160,000 $105,530,000 Movies and mini-series/Family pro- gramming......................... 121,642,000 88,642,000 33,000,000 Projects in production............ 40,647,000 -- 40,647,000 Development....................... 2,648,000 398,000 2,250,000 -------------- ------------ ------------ $ 859,627,000 $678,200,000 $181,427,000 ============== ============ ============ JUNE 30, 1997 ---------------------------------------- NET ACCUMULATED PROGRAMMING COST AMORTIZATION COSTS -------------- ------------ ------------ Children's programming............ $ 860,582,000 $723,751,000 $136,831,000 Movies and mini-series/Family pro- gramming......................... 135,685,000 99,162,000 36,523,000 Projects in production............ 58,167,000 -- 58,167,000 Development....................... 4,054,000 -- 4,054,000 -------------- ------------ ------------ $1,058,488,000 $822,913,000 $235,575,000 ============== ============ ============ SEPTEMBER 30, 1997 (UNAUDITED) ---------------------------------------- NET ACCUMULATED PROGRAMMING COST AMORTIZATION COSTS -------------- ------------ ------------ Children's programming............ $ 913,161,000 $755,704,000 $157,457,000 Movies and mini-series/Family programming...................... 297,434,000 124,842,000 172,592,000 Projects in production............ 49,329,000 -- 49,329,000 Development....................... 5,172,000 -- 5,172,000 -------------- ------------ ------------ $1,265,096,000 $880,546,000 $384,550,000 ============== ============ ============
Based on the Company's estimate of future revenues, approximately 73% of unamortized released programming costs at June 30, 1997 will be amortized during the three years ending June 30, 2000. Interest amounting to $1,146,000 and $346,000 was capitalized to programming costs for the year ended June 30, 1997 and the three months ended September 30, 1997, respectively. 4. PROPERTY AND EQUIPMENT Property and equipment is comprised of the following:
1996 1997 ----------- ----------- Studio equipment.................................... $ 8,338,000 $10,997,000 Office furniture and fixtures....................... 3,257,000 3,417,000 Leasehold improvements.............................. 2,455,000 2,957,000 Other............................................... 64,000 179,000 ----------- ----------- 14,114,000 17,550,000 Less accumulated depreciation....................... 5,403,000 8,629,000 ----------- ----------- $ 8,711,000 $ 8,921,000 =========== ===========
F-20 FCN HOLDING, INC., SABAN ENTERTAINMENT, INC. AND FOX KIDS WORLDWIDE, L.L.C. (FROM AND AFTER THE DATE OF THE REORGANIZATION (NOTE 1), FOX KIDS WORLDWIDE, INC.) NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED) (INFORMATION WITH RESPECT TO SEPTEMBER 30, 1997 AND TO THE THREE MONTH PERIODS ENDED SEPTEMBER 30, 1996 AND 1997 IS UNAUDITED) 5. DEBT Debt is comprised of the following:
SEPTEMBER 30, 1996 1997 1997 ----------- ----------- -------------- (UNAUDITED) DeNationale Investeringsbank N.V.; secured line of credit due April 18, 1999; interest at three month LIBOR (5.78% at June 30, 1997; 5.77% at September 30, 1997) plus 0.4% paid quarterly; maximum borrowings of $8,000,000........... $ 6,862,000 $ 7,093,000 $ 7,333,000 Secured lines of credit with varying due dates between December 31, 1997 and April 13, 1998; maximum borrowing availability varying between FF 3,500,000 ($607,000 at June 30, 1997) and FF 16,462,000 ($2,855,000 at June 30, 1997); varying interest rates (between 3.98% and 8.60% at June 30, 1997; between 4.04% and 8.60% at September 30, 1997) paid quarterly.......................... 3,554,000 3,879,000 4,127,000 Secured promissory notes with varying due dates between April 16, 1997 and August 5, 1999; original principal amounts paid quarterly or at maturity; notes are non-interest bearing............................ 6,484,000 1,280,000 975,000 Promissory note due February 1, 2002; principal amounts paid annually starting February 1999; interest at 6%..................... -- -- 6,365,000 Norwest Equipment Finance, Inc.; secured promissory note due February 9, 2000 and principal paid annually; original principal of $3,912,000; interest at 7.5% per annum and paid annually............ 3,016,000 2,340,000 2,340,000 Imperial Bank; secured revolving line of credit; interest at prime rate (8.5% at June 30, 1997 and September 30, 1997) plus .5% or one-month LIBOR (5.69% at June 30, 1997) plus 2% paid monthly; maximum borrowings of $50,000,000.......... -- 43,000,000 -- Citicorp USA; secured revolving line of credit; interest at prime rate (8.5% at September 30, 1997) plus 1.25% or 30-day LIBOR (5.66% at September 30, 1997) plus 2.25%; maximum borrowings of $900,000,000....................... -- -- 900,000,000 Citicorp USA; secured term loan facility; interest at prime rate (8.5% at September 30, 1997) plus 1.25% or 30-day LIBOR (5.66% at September 30, 1997) plus 2.25%; maximum borrowings of $350,000,000....................... -- -- 350,000,000 ----------- ----------- -------------- $19,916,000 $57,592,000 $1,271,140,000 =========== =========== ==============
F-21 FCN HOLDING, INC., SABAN ENTERTAINMENT, INC. AND FOX KIDS WORLDWIDE, L.L.C. (FROM AND AFTER THE DATE OF THE REORGANIZATION (NOTE 1), FOX KIDS WORLDWIDE, INC.) NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED) (INFORMATION WITH RESPECT TO SEPTEMBER 30, 1997 AND TO THE THREE MONTH PERIODS ENDED SEPTEMBER 30, 1996 AND 1997 IS UNAUDITED) Payments of principal on promissory notes in future periods are as follows:
YEAR ENDING JUNE 30 ------------------- 1998........................................................... $ 1,924,000 1999........................................................... 892,000 2000........................................................... 804,000 2001........................................................... -- ----------- $ 3,620,000 ===========
In July 1995, Saban and SINV separately entered into credit agreements with Imperial bank (Imperial), as agent, and a group of lenders for secured revolving credit facilities (Credit Facilities) aggregating $50 million maturing on July 31, 1998. Interest on the borrowings is at either the prime rate (8.5% at June 30, 1997) plus .5% or .25% depending on Saban's and SINV's tangible net worth or three month or six month LIBOR (5.78% and 5.91%, respectively, at June 30, 1997) plus 2.25% or 2% (2% at June 30, 1997) depending on Saban's and SINV's tangible net worth. Interest is payable at the end of the interest period which is either one, three or six months. Saban and SINV are required to pay a quarterly commitment fee of .25% per annum of the average daily unused portion of the commitment. Saban and SINV also paid a loan fee amounting to .75% of the commitment. The combined amount available for borrowing under the Credit Facilities at any time is limited in accordance with a formula based upon the value of collateral in Saban's and SINV's borrowing bases. The borrowing bases include on and off balance sheet receivables and amounts attributable to the value of Saban's and SINV's film libraries. Saban's credit facility is secured by substantially all of the assets of Saban and its subsidiaries (excluding SINV and other foreign subsidiaries of Saban) and SINV's credit facility is secured by substantially all of the assets of Saban and its subsidiaries. The Credit Facilities restrict the payment of dividends. The Credit Facilities contain restrictive covenants regarding, among other things, additional indebtedness payments and advances for product, the maintenance of certain financial ratios and restrictions on the disposition of assets. At June 30, 1997, the Company and SINV were in compliance or had obtained waivers for these covenants. In August 1997, the Credit Facilities were paid in full and terminated. 6. INCOME TAXES Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company's deferred tax liabilities and assets are as follows:
1996 1997 ------------ ------------ Deferred tax liabilities: Accounts receivable........................... $ 581,000 $ 1,250,000 State taxes................................... 209,000 -- ------------ ------------ Total deferred tax liabilities.................. 790,000 1,250,000 Deferred tax assets: State taxes................................... -- 483,000 Deferred revenue.............................. 18,813,000 5,978,000 Book over tax amortization.................... 665,000 17,696,000 Accrued expenses and reserves................. 6,095,000 7,625,000 Other......................................... 1,450,000 807,000 ------------ ------------ Total deferred tax assets....................... 27,023,000 32,589,000 Valuation allowance for deferred tax assets..... -- (14,938,000) ------------ ------------ Deferred tax assets............................. 27,023,000 17,651,000 ------------ ------------ Net deferred tax assets......................... $(26,233,000) $(16,401,000) ============ ============
F-22 FCN HOLDING, INC., SABAN ENTERTAINMENT, INC. AND FOX KIDS WORLDWIDE, L.L.C. (FROM AND AFTER THE DATE OF THE REORGANIZATION (NOTE 1), FOX KIDS WORLDWIDE, INC.) NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED) (INFORMATION WITH RESPECT TO SEPTEMBER 30, 1997 AND TO THE THREE MONTH PERIODS ENDED SEPTEMBER 30, 1996 AND 1997 IS UNAUDITED) For financial reporting purposes, income before income taxes includes the following components:
1996 1997 ----------- ----------- Pretax income: United States....................................... $31,149,000 $31,605,000 Foreign............................................. 16,725,000 23,402,000 ----------- ----------- $49,874,000 $55,007,000 =========== ===========
Significant components of the provision for income taxes are as follows:
1996 1997 ----------- ----------- Current: Federal.......................................... $14,316,000 $ 3,430,000 State............................................ 3,964,000 (508,000) Foreign.......................................... 586,000 1,881,000 ----------- ----------- 18,866,000 4,803,000 Deferred: Federal.......................................... (431,000) 6,970,000 State............................................ (161,000) 2,794,000 Foreign.......................................... -- -- ----------- ----------- (592,000) 9,764,000 ----------- ----------- $18,274,000 $14,567,000 =========== ===========
The reconciliation of income tax computed at the U.S. federal statutory tax rates to income tax expense is:
1996 1997 ---- ---- Tax at U.S. statutory rates..................................... 35% 35% State taxes, net of federal benefit............................. 5 3 Foreign subsidiary's income not subject to state or federal tax............................................................ (13) (15) Foreign taxes................................................... 1 3 Other........................................................... 1 -- Non-deductible investment advisory fees......................... 8 -- --- --- 37% 26% === ===
A liability attributable to the tax provision of FCN Holding was deemed to be contributed to capital by a related party. Undistributed earnings of the Company's foreign subsidiaries amounted to approximately $79,700,000 at June 30, 1997. Those earnings are considered to be indefinitely reinvested and, accordingly, no provision for U.S. federal and state income taxes has been provided thereon. Upon distribution of those earnings in the form of dividends or otherwise, the Company would be subject to both U.S. income taxes (subject to an adjustment for foreign tax credits) and withholding taxes payable to the various foreign countries. Determination of the amount of unrecognized deferred U.S. income tax liability is not practicable because of the complexities associated with its hypothetical calculation; however, unrecognized foreign tax credit carryforwards would be available to reduce some portion of the U.S. liability. It is possible that the Internal Revenue Service could under certain theories attempt to tax the foreign subsidiaries' income. Currently, management of the Company believe that any such theories would be without merit. F-23 FCN HOLDING, INC., SABAN ENTERTAINMENT, INC. AND FOX KIDS WORLDWIDE, L.L.C. (FROM AND AFTER THE DATE OF THE REORGANIZATION (NOTE 1), FOX KIDS WORLDWIDE, INC.) NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED) (INFORMATION WITH RESPECT TO SEPTEMBER 30, 1997 AND TO THE THREE MONTH PERIODS ENDED SEPTEMBER 30, 1996 AND 1997 IS UNAUDITED) 7. COMMITMENTS AND CONTINGENCIES The Company leases office space in Paris, France, Cologne, Germany and London, England under nine year, five year and three year operating leases, respectively. The Paris, France leases provide for early termination on February 28, 1999 or February 28, 2002, upon six months advance written notice. The London, England lease provides for early termination upon six months advance written notice. In July 1995, the Company entered into a 10 year written lease commencing on April 1, 1996 for office space in Los Angeles, California subject to two separate five year extension options. The lease provides for early termination at the end of the sixth and eighth years upon payment of a termination fee. The lease calls for monthly payments plus maintenance and property tax payments. The Company also has a two-year lease for production facilities in Valencia, California expiring in January 1998 and subject to a one-year extension. In August 1997, the Company entered into a 10 year lease for office space in London, England. The lease provides for early termination at the end of the fifth year upon nine months advance written notice. Noncancelable future minimum payments for the remainder of the initial, noncancelable lease periods are as follows:
YEAR ENDING JUNE 30 ------------------- 1998.......................................................... $ 4,546,000 1999.......................................................... 5,391,000 2000.......................................................... 6,442,000 2001.......................................................... 6,652,000 2002.......................................................... 7,618,000 Thereafter.................................................... 23,532,000 ----------- $54,181,000 ===========
Rent expense for the eight months ended June 30, 1996 and for the year ended June 30, 1997, net of amounts capitalized, was approximately $1,006,000 and $2,573,000, respectively. The Fox Kids Network occupies approximately 6,134 square feet in a facility subleased from FOX Television Stations, Inc. (FOX Television) on a month to month arrangement. The Fox Kids Network currently pays to FOX Television an annual rate of $25.17 per square foot for use of this space. As of April 1, 1997, the other Fox Kids Network employees and certain other of the Company's employees relocated to a new facility in Los Angeles which FOX Television recently acquired from New World. The Fox Kids Network leases 36,450 square feet. No rent has been paid yet for this lease and the rate has not been negotiated. The Company is involved in various lawsuits, both as a plaintiff and defendant, in the ordinary course of its business. Based on an evaluation which included consultation with counsel concerning legal and factual issues involved, management is of the opinion that the foregoing claims and lawsuits will not have a material adverse effect on the Company's consolidated financial position. The Company has entered into employment agreements with certain key members of management. Such agreements are for terms originally ranging from one to six and one-half years and generally include bonus provisions. Additionally, one key member of management has entered into a five-year, non-exclusive consulting agreement pursuant to which, among other things, the Company agreed that if the employment agreement is not extended beyond the current five-year term, the Company would, on the terms set forth therein, be obligated to F-24 FCN HOLDING, INC., SABAN ENTERTAINMENT, INC. AND FOX KIDS WORLDWIDE, L.L.C. (FROM AND AFTER THE DATE OF THE REORGANIZATION (NOTE 1), FOX KIDS WORLDWIDE, INC.) NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED) (INFORMATION WITH RESPECT TO SEPTEMBER 30, 1997 AND TO THE THREE MONTH PERIODS ENDED SEPTEMBER 30, 1996 AND 1997 IS UNAUDITED) pay this individual over a five-year period an annual consulting fee at a rate not exceeding $250,000 per year. Future minimum payments under these agreements approximate $21,949,000 of which $10,795,000 is due in 1998, $4,800,000 is due in 1999, $2,671,000 is due in 2000, $1,559,000 is due in 2001, and $1,250,000 is due in 2002 and $875,000 is due thereafter. Effective June 1994, Saban issued to two employees and a consultant options to purchase an aggregate of 48.981 shares of common stock, 29.388 of which were exercisable at June 30, 1997. These options vest ratably over five years and are exercisable at $122,496 per share, which approximates the fair value at the time of grant. Effective January 1996, Saban issued to one key employee options to purchase 16.327 shares of common stock, 6.531 of which were exercisable at June 30, 1997. These options vest ratably over five years and are exercisable at $612,500 per share, which approximates the fair market value at the time of grant. No options have been exercised at June 30, 1997. With respect to termination for any reason, so long as the Company is not public, the Company will purchase from the employee and the employee will sell to the Company any and all option shares owned by the employee and the option granted to the employee for an amount equal to the fair market value of the option shares owned by the employee plus the fair market value of the option shares with respect to which the employee's option has vested but not exercised less the exercise price. Included in selling, general and administrative expenses for the eight months ended June 30, 1996 and the year ended June 30, 1997 is $3,800,000 and $3,760,000, respectively, and in accrued liabilities at June 30, 1996 and June 30, 1997 is $17,200,000 and $20,960,000, respectively, related to compensation recorded in connection with these options. In connection with the Reorganization as described in Note 1, all options became options to purchase 646,548 shares of the Class A Common Stock at exercise prices of $12.37 and $61.87 and will have a term of 10 years from the date of grant, unless terminated earlier as provided in the agreement granting the options. As of June 30, 1997, 65.308 shares (646,548 shares of Class A Common Stock) of Saban common stock are reserved for future issuance related to options. Future estimated program commitments are approximately $32,611,000. FCN Holding issued to an investment banker 16.16 shares of common stock of FCN Holding (160,000 shares of Class A Common Stock) as compensation for certain financial advisory and other investment banking services rendered in connection with the negotiations, structuring, formation and capitalization of the LLC. In connection therewith, $10,000,000 is included in the combined statement of operations for the eight months ended June 30, 1996. FCN Holding has reserved 16.16 shares (160,000 shares of Class A Common Stock) for future issuances. 8. PROFIT SHARING PLAN Saban has a qualified tax deferred profit sharing plan (the Plan) for all of its eligible employees. Under the Plan, employees become eligible on the first January 1 following such employees' completion of six months of service with Saban. Each participant is permitted to make voluntary contributions, not to exceed 15% of his or her respective compensation and the applicable statutory limitations, which are immediately 100% vested. Saban, at the discretion of the Board of Directors, may make matching contributions to the Plan. Related expense for the eight months ended June 30, 1996 and the year ended June 30, 1997 was approximately $43,000 and $101,000, respectively. F-25 FCN HOLDING, INC., SABAN ENTERTAINMENT, INC. AND FOX KIDS WORLDWIDE, L.L.C. (FROM AND AFTER THE DATE OF THE REORGANIZATION (NOTE 1), FOX KIDS WORLDWIDE, INC.) NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED) (INFORMATION WITH RESPECT TO SEPTEMBER 30, 1997 AND TO THE THREE MONTH PERIODS ENDED SEPTEMBER 30, 1996 AND 1997 IS UNAUDITED) 9. ACQUISITIONS On April 6, 1996, the Company acquired the stock of Creativite & Developpement SA (C&D), a leading Paris-based producer of family entertainment, for $2,869,000, $1,721,000 paid upon closing and $1,148,000 payable approximately one year later subject to certain specified conditions and is secured by letters of credit. The acquisition was accounted for as a purchase and the entire purchase price was allocated principally to international distribution rights to children's programming. The results of operations of C&D since the purchase date of April 16, 1996, have been included with the Company's results of operations for the eight months ended June 30, 1997 and for the year ended June 30, 1997. Unaudited pro forma combined statements of operations for the years ended July 2, 1995 and June 30, 1996, which would combine the results of operations of the Company and C&D, are not presented herein as such information is not material to the combined results of operations. In December 1996, the Company purchased from Vesical Limited (Vesical) its interest and rights to certain television programming and related accounts receivable balances for $12,000,000, $7,200,000 paid upon closing (April 18, 1996) and $4,800,000 paid in April 1997. The Company allocated the purchase price between the account receivable balances and the television programming rights based upon the respective assets fair market values using a discounted cash flow analysis. In March 1997, the Company acquired 90% of the shares in TV10 from Arcade Media Group B.V. and Wegener N.V. TV10 operates a channel in Holland that is distributed via cable. The Company intends to sell 50% of its interest in TV10 to a third party. Since the Company's control of TV10 is only temporary, the Company has accounted for its investment under the equity method of accounting and has recorded its share of TV10 operations since the acquisition date. During the year ended June 30, 1997, the Company advanced TV10 approximately $830,000 to fund operations. 10. SIGNIFICANT CUSTOMERS AND PROPERTIES AND GEOGRAPHICAL INFORMATION The Company operates in one business segment which is the acquisition, production and worldwide broadcast, distribution and leasing of entertainment properties. For the eight months ended June 30, 1996 and the year ended June 30, 1997, the Company earned revenues from one significant customer of approximately $32,148,000 (17%) and $35,500,000 (12%), respectively. The Company earned revenues of $72,668,000 (38%) and $70,810,000 (23%) for the eight months ended June 30, 1996 and for the year ended June 30, 1997, respectively, from one significant property (Power Rangers). F-26 FCN HOLDING, INC., SABAN ENTERTAINMENT, INC. AND FOX KIDS WORLDWIDE, L.L.C. (FROM AND AFTER THE DATE OF THE REORGANIZATION (NOTE 1), FOX KIDS WORLDWIDE, INC.) NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED) (INFORMATION WITH RESPECT TO SEPTEMBER 30, 1997 AND TO THE THREE MONTH PERIODS ENDED SEPTEMBER 30, 1996 AND 1997 IS UNAUDITED) Geographical information concerning the Company's operations is as follows:
1996 1997 ------------ ------------ Revenues: Domestic....................................... $129,645,000 $199,575,000 International, principally Europe(2)........... 61,976,000 108,245,000 ------------ ------------ 191,621,000 307,820,000 Operating profit(1) Domestic....................................... 67,970,000 84,295,000 International, principally Europe(2)........... 24,714,000 43,144,000 ------------ ------------ 92,684,000 127,439,000 Selling, general and administrative expense...... 23,072,000 62,466,000 Fox Kids Network affiliate participants.......... 8,853,000 6,194,000 Equity in loss of unconsolidated affiliate (Europe)........................................ -- 1,546,000 Investment advisory fee.......................... 10,000,000 -- Interest expense................................. 885,000 2,226,000 ------------ ------------ Income before provision for income taxes......... $ 49,874,000 $ 55,007,000 ============ ============ Identifiable assets: Domestic....................................... $197,315,000 $164,481,000 International, principally Europe(2)........... 138,955,000 247,920,000 ------------ ------------ $336,270,000 $412,401,000 ============ ============
- -------- (1) For purposes of this presentation, operating profit is total revenues less amortization of programming costs residuals and profit participations. (2) International amounts relate principally to Western Europe in connection with the Company's subsidiary, SINV, a Netherlands Antilles company with offices in Switzerland. 11. STOCK BASED COMPENSATION The Company has elected to follow Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" (APB 25), and related Interpretations in accounting for its employee stock options because, as discussed below, the alternative fair value accounting provided for under FASB Statement No. 123, "Accounting for Stock-Based Compensation," requires use of option valuation models that were not developed for use in valuing employee stock options. Pro forma information regarding net income and earnings per share is required by Statement 123, and has been determined as if the Company had accounted for its employee stock options under the fair value method of that Statement. The fair value for these options was estimated at the date of grant using the minimum value method with the following weighted-average assumptions, respectively: risk-free interest rate of 5.86%; dividend yields of 0%; and a weighted-average expected life of the option of 5 years. The fair value of the options granted in January 1996 is $2,623,000 and the remaining contractual life of these options is 8.5 years. The minimum value valuation method was developed for use in estimating the fair value of traded options which have no vesting restrictions and are fully transferable. In addition, valuation models require the input of highly subjective assumptions including the expected stock price volatility. Because the Company's employee stock options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in management's opinion, the existing models do not necessarily provide a reliable single measure of the fair value of its employee stock options. F-27 FCN HOLDING, INC., SABAN ENTERTAINMENT, INC. AND FOX KIDS WORLDWIDE, L.L.C. (FROM AND AFTER THE DATE OF THE REORGANIZATION (NOTE 1), FOX KIDS WORLDWIDE, INC.) NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED) (INFORMATION WITH RESPECT TO SEPTEMBER 30, 1997 AND TO THE THREE MONTH PERIODS ENDED SEPTEMBER 30, 1996 AND 1997 IS UNAUDITED) The pro forma net income determined as if the Company had accounted for its employee stock options under the fair value method would be $31,338,000 and $41,389,000 for the eight months ended June 30, 1996 and the year ended June 30, 1997, respectively. 12. SUBSEQUENT EVENTS Description of Bank Facility Existing Credit Facility. Fox Kids Worldwide Inc., FCN Holding, Saban and IFE currently are borrowers (the co-borrowers) under the Existing Credit Facility with a group of banks led by Citicorp in the amount of $1.25 billion. The Existing Credit Facility comprises a $602 million seven-year secured reducing revolving credit facility, a $298 million seven-year secured reducing revolving credit facility and a $350 million nine year secured term loan facility. The proceeds of the loans under the Existing Credit Facility were used to finance, in part, the IFE Acquisition and to repay certain obligations of subsidiaries of the Company and will be used, in part, for working capital purposes. Borrowings under the Existing Credit Facility are unconditionally guaranteed by each Co-borrower and each subsidiary that is wholly-owned, directly or indirectly, by any of the Co-borrowers. In addition, borrowings under the Existing Credit Facility and the guarantees are secured by substantially all of the assets of the Co-borrowers and their subsidiaries, who guaranteed the obligations. Revolving credit commitments will reduce on a quarterly basis commencing the quarter ending December 28, 2000, and will continue through the quarter ending September 29, 2004. Under the Existing Credit Facility, subject to certain conditions, the Co-borrowers will be required to make certain mandatory prepayments. The borrowings under the Existing Credit Facility will bear interest at the Company's option at a rate per annum equal to either LIBOR or a base rate plus, in each case, an applicable interest rate margin. In connection with the Existing Credit Facility, the Company will pay a commitment fee on the unused and available amounts under the Existing Credit Facility. The Existing Credit Facility contains a number of significant covenants that, among other things, limit the ability of the Co-borrowers and their respective subsidiaries to incur additional indebtedness, create liens and other encumbrances, make certain payments and investments, make capital expenditures, make distributions to owners and repurchase debt and equity. In addition, the Existing Credit Facility requires the maintenance of certain specified financial and operating covenants, including, without limitation, capital expenditure limitations and ratios of EBITDA to fixed charges, total debt to EBITDA and EBITDA to interest expense. The Existing Credit Facility also contains representations, warranties, covenants, conditions and events of default customary for senior credit facilities of similar size and nature. Amended Credit Facility. Upon consummation from an offering that the Company plans to consummate in the latter part of calendar 1997, the Existing Credit Facility will be amended (as amended, the "Amended Credit Facility") to consist of a $355 million seven-year term loan and a $355 million seven-year reducing revolving credit facility. Fox Kids Worldwide, Inc. will not be a borrower under the Amended Credit Facility. Instead, Fox Kids Worldwide, Inc. will create a wholly-owned subsidiary organized as a limited liability company ("FK Holdings"), which will hold the equity interests of FCN Holding, Saban and IFE (which will remain borrowers) and which will guarantee the Amended Credit Facility. F-28 FCN HOLDING, INC., SABAN ENTERTAINMENT, INC. AND FOX KIDS WORLDWIDE, L.L.C. (FROM AND AFTER THE DATE OF THE REORGANIZATION (NOTE 1), FOX KIDS WORLDWIDE, INC.) NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED) (INFORMATION WITH RESPECT TO SEPTEMBER 30, 1997 AND TO THE THREE MONTH PERIODS ENDED SEPTEMBER 30, 1996 AND 1997 IS UNAUDITED) The collateral for the Amended Credit Facility will be limited to the equity interests of FK Holdings, the borrowers and their subsidiaries (subject to certain limitations for foreign and less than wholly owned subsidiaries) and intercompany indebtedness. Scheduled payments on the term loan will begin September 28, 2000, with 10% of the term loan being reduced in year 3 of the loan, 20% in each of years 4 and 5 and 25% in each of years 6 and 7. Scheduled quarterly reductions to the revolving credit commitment will begin September 27, 2002, with 15% of the commitment being reduced in each of years 5 and 6 and 70% in year 7. Certain of the baskets and exceptions to the negative covenants in the Existing Credit Facility will be broadened in the Amended Credit Facility to allow more flexibility. Additionally, certain financial covenants will be adjusted to reflect the new structure. Equity Ownership After the Reorganization as described above and the IFE acquisition as described below, the equity ownership of the Company is as follows: Haim Saban and the former Saban Stockholders collectively own 7,920,000 shares (50%) of the Class B Common Stock, par value $.001 per share ("Class B Common Stock"), and an indirect wholly-owned subsidiary of Fox Broadcasting Company (itself a subsidiary of News Corp.) owns 7,920,000 shares (50%) of the Class B Common Stock. Allen & Company Incorporated owns 160,000 shares (100%) of the Class A Common Stock, par value $.001 (the "Class A Common Stock"). Liberty IFE owns 345,000 shares (100%) of Series A Preferred Stock. The Common Stock The holders of Class A Common Stock (the "Class A Stockholders") are entitled to one vote per share and the holders of Class B Common Stock (the "Class B Stockholders") are entitled to ten votes per share. Both classes vote together as a single class. A "majority" vote (or any other greater percentage) for stockholder action requires a majority of the aggregate number of votes entitled to be cast at such vote. The Company's Certificate of Incorporation does not provide for cumulative voting rights. Subject to the rights of the holders of shares of any series of Preferred Stock, the Class A and Class B Stockholders are to receive like dividends and other similar distributions of the Company. In the case of any split, subdivision, combination or reclassification of shares of Class A or Class B Common Stock, an equivalent split, subdivision, combination or reclassification must be made to the shares of Class B or Class A Common Stock, as the case may be. The Class A and Class B Stockholders have equivalent rights to distributions in the event of any liquidation, dissolution or winding up (either voluntary or involuntary) of the Company, in proportion to the number of shares held by them without regard to class. In the event of any corporate merger, consolidating purchase or acquisition, the Class A and Class B Stockholders are to receive the same consideration on a per share basis, and if the consideration in such transaction consists in any part of voting securities, the Class B Stockholders are to receive, on a per share basis, voting securities with ten times the number of votes per share as those voting securities to be received by the Class A Stockholders. The shares of Class A Common Stock are freely transferable, but the shares of Class B Common Stock are subject to transfer restrictions as set forth more fully in the Company's charter. The Class B Stockholders may only transfer their shares to a "Permitted Transferee" and any unauthorized transfer will cause an automatic F-29 FCN HOLDING, INC., SABAN ENTERTAINMENT, INC. AND FOX KIDS WORLDWIDE, L.L.C. (FROM AND AFTER THE DATE OF THE REORGANIZATION (NOTE 1), FOX KIDS WORLDWIDE, INC.) NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED) (INFORMATION WITH RESPECT TO SEPTEMBER 30, 1997 AND TO THE THREE MONTH PERIODS ENDED SEPTEMBER 30, 1996 AND 1997 IS UNAUDITED) conversion of such shares into shares of Class A Common Stock. Regardless of the transfer restriction on the Class B Common Stock, any Class B Stockholder may pledge its shares as collateral security for any indebtedness or other obligation. Each share of Class B Common Stock is convertible, at the option of its holder, at any time into one validly issued, fully paid and non-assessable shares of Class A Common Stock. The Series A Preferred Stock The holders of the Series A Preferred Stock (or the "Liberty Preferred") will receive cash dividends of 9% per annum in arrears, paid quarterly. Any accrued or unpaid dividends will be added to the liquidation price and until such accrued and unpaid dividends are paid in full, the dividend rate will increase to 11.5% of the liquidation price. The liquidation price is $1,000 per share plus any accrued and unpaid dividends. Pursuant to the Funding Agreement among News Corp., News Publishing Australia Limited ("NPAL"), a wholly-owned subsidiary of News Corp., and the Company (the "Funding Agreement"), each of News Corp. and NPAL has unconditionally agreed that, upon the occurrence and during the continuation of an event of default under the provisions governing the Series A Preferred Stock in the Company's Corrected Restated Certificate of Incorporation or liquidation, dissolution, winding up or other similar event of the Company, News Corp. or NPAL, as the case may be, will provide the Company with the funds necessary to redeem in full, or pay the liquidation distribution on all of the outstanding Series A Preferred Stock and to pay any other amounts owing in respect of such shares. Pursuant to the Amended and Restated Strategic Stockholders Agreement (as defined), such funds will be, except under certain circumstances, in the form of an advance or loan to the Company. The following constitute events of default with respect to the Series A Preferred Stock under the Corrected Restated Certificate of Incorporation: (i) the failure of the Company to mandatorily redeem Series A Preferred Stock at the redemption dates indicated below; (ii) a breach for thirty days of any of the covenants contained in the provisions governing the Series A Preferred Stock; and (iii) an event of default under the terms of the preferred stock of NPAL, if any shares of which are outstanding. In addition, pursuant to the Exchange Agreement among NPAL, Liberty Media Corporation ("Liberty Media") and Liberty IFE (the "Exchange Agreement"), each of the holders of the Series A Preferred Stock has the right, upon the occurrence and during the continuation of an event of default under the Corrected Restated Certificate of Incorporation or the liquidation, winding up or other similar event of the Company, to exchange their shares for an equivalent number of shares of preferred stock of NPAL. The Series A Preferred Stock issued to Liberty IFE will rank senior as to dividend, redemption and liquidation rights to all other classes and series of capital stock of the Company authorized on the date of issuance, or to any other class or series of capital stock issued while any shares of the Series A Preferred Stock remain outstanding. The Series A Preferred Stock does not have voting rights, except as required by law, nor will stockholders of Series A Preferred Stock have preemptive rights over any stock or securities that may be issued by the Company. The Series A Preferred Stock will be redeemed in 2027 at a price equal to the liquidation price as of the date of such redemption, payable in cash. In years 2017 and 2022, holders of the Series A Preferred Stock have a thirty day period commencing August 2 of such years in which they can require the Company to redeem the Series A Preferred Stock at a price equal to the liquidation price, payable in cash. At any time after August 1, 2007, the Company may, at its option, repurchase all shares of Series A Preferred Stock, again at a price equal to the liquidation price, payable in cash. Under such redemption requirements, any failure by the Company to redeem the Series A Preferred Stock will obligate News Corp. and NPAL to perform under the Funding Agreement. F-30 FCN HOLDING, INC., SABAN ENTERTAINMENT, INC. AND FOX KIDS WORLDWIDE, L.L.C. (FROM AND AFTER THE DATE OF THE REORGANIZATION (NOTE 1), FOX KIDS WORLDWIDE, INC.) NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED) (INFORMATION WITH RESPECT TO SEPTEMBER 30, 1997 AND TO THE THREE MONTH PERIODS ENDED SEPTEMBER 30, 1996 AND 1997 IS UNAUDITED) 13. EVENTS (UNAUDITED) SUBSEQUENT TO THE DATE OF THE INDEPENDENT AUDITOR'S REPORT The acquisition of IFE was accounted for as a purchase by the Company of IFE. Based upon a preliminary review by management, the aggregate purchase price of IFE in excess of the fair value of the identifiable assets of IFE at the date of acquisition was approximately $1.7 billion and is being amortized over 40 years. These intangible assets are reviewed periodically to determine if the facts and circumstances suggest that it may be impaired. If this review indicates that these intangible assets will not be recoverable, as determined based upon discounted cash flows of the acquired business over the remaining amortization period, then the carrying value of the related intangible assets will be reduced by the estimated shortfalls of cash flows. The results of operations of IFE since the purchase date of August 1, 1997 have been included with the Company's results of operations for the three months ended September 30, 1997. Certain operations and assets of IFE are intended to be sold by the Company. Accordingly, such assets have been reflected as assets held for sale in the September 30, 1997 balance sheet. The following unaudited pro forma information for the three months ended September 30, 1996 and 1997 reflect the results of the Company's consolidated operations as if the acquisition occurred at the beginning of each period presented. The unaudited pro forma consolidated financial results are not necessarily indicative of the actual results that would have occurred had the acquisition occurred at the beginning of each period presented.
THREE MONTHS ENDED THREE MONTHS ENDED SEPTEMBER 30, 1996 SEPTEMBER 30, 1997 ------------------ ------------------ Revenues.................................. $131,702,000 $147,431,000 Net loss.................................. (8,117,000) (11,990,000) Net loss per common share................. (.99) (1.23)
On October 28, 1997, the Company issued $475,000,000 aggregate principal amount of 9 1/4% Senior Notes Due 2007 and $618,670,000 aggregate principal amount at maturity of 10 1/4% Senior Discount Notes Due 2007 in a transaction not registered under the Securities Act in reliance upon an exemption from the registration requirements of the Securities Act. Gross proceeds from the offering amounted to $850,000,000. F-31 REPORT OF INDEPENDENT AUDITORS Board of Directors FCN Holding, Inc. We have audited the accompanying consolidated balance sheets of FCN Holding, Inc., as of July 2, 1995 and October 31, 1995, and the related consolidated statements of operations, stockholder's equity, and cash flows for the period from July 4, 1994 to July 2, 1995 and the period from July 3, 1995 to October 31, 1995. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of FCN Holding, Inc. and the results of its operations and its cash flows for the period from July 4, 1994 to July 2, 1995 and the period from July 3, 1995 to October 31, 1995, in conformity with generally accepted accounting principles. Ernst & Young LLP Los Angeles, California September 27, 1996, except for the second paragraph of Note 10 as to which the date is September 29, 1997 F-32 FCN HOLDING, INC. CONSOLIDATED BALANCE SHEETS
JULY 2, OCTOBER 31, 1995 1995 ----------- ----------- ASSETS Cash and cash equivalents............................ $ -- $ 317,000 Accounts receivable, including $2,265,000 (July 2, 1995) and $2,341,000 (October 31, 1995) from related parties............................................. 23,539,000 24,195,000 Programming costs, less accumulated amortization..... 26,143,000 27,085,000 Property and equipment, at cost, less accumulated depreciation ....................................... 85,000 103,000 Other assets......................................... 49,000 1,107,000 ----------- ----------- Total assets......................................... $49,816,000 $52,807,000 =========== =========== LIABILITIES AND STOCKHOLDER'S DEFICIT Accounts payable..................................... $ 1,991,000 1,718,000 Accrued liabilities.................................. 876,000 1,291,000 Deferred revenue..................................... 1,763,000 791,000 Fox Kids Network affiliate participation payable..... 11,523,000 18,421,000 Accrued programming expenditures..................... 21,960,000 19,816,000 Administrative fee payable to a related party........ 4,828,000 6,173,000 Amounts payable to related parties................... 10,686,000 8,727,000 ----------- ----------- Total liabilities.................................... 53,627,000 56,937,000 Commitments and contingencies -- -- Stockholder's deficit: Common stock, no par value, 2,000 authorized, issued and outstanding 2,000 shares............... 2,000 2,000 Retained deficit................................... (3,813,000) (4,132,000) ----------- ----------- Total stockholder's deficit.......................... (3,811,000) (4,130,000) ----------- ----------- Total liabilities and stockholder's deficit.......... $49,816,000 $52,807,000 =========== ===========
See accompanying notes. F-33 FCN HOLDING, INC. CONSOLIDATED STATEMENTS OF OPERATIONS
PERIOD FROM PERIOD FROM JULY 4, 1994 JULY 3, 1995 TO TO JULY 2, 1995 OCTOBER 31, 1995 ------------ ---------------- Net revenues (including $8,443,000 (July 2, 1995) and $2,822,000 (October 31, 1995) from related parties)........................................ $168,871,000 $46,286,000 Costs and expenses: Production and programming .................... 109,259,000 29,698,000 Ancillary market distribution costs to a related party ................................ 3,255,000 1,140,000 Administrative fee to a related party.......... 21,458,000 6,173,000 Selling, general and administrative (including $1,075,000 (July 2, 1995) and $448,000 (October 31, 1995) to related parties)........ 5,202,000 2,566,000 Fox Kids Network affiliate participations...... 11,523,000 6,883,000 ------------ ----------- Operating income (loss).......................... 18,174,000 (174,000) ------------ ----------- Interest expense to a related party.............. 1,630,000 145,000 ------------ ----------- Income (loss) before provision for income taxes.. 16,544,000 (319,000) Provision for income taxes....................... -- -- ------------ ----------- Net income (loss)................................ $ 16,544,000 $ (319,000) ============ ===========
See accompanying notes. F-34 FCN HOLDING, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY
COMMON STOCK ------------- RETAINED SHARES AMOUNT DEFICIT TOTAL ------ ------ ----------- ----------- Balance at July 3, 1994................ 1,000 1,000 (20,357,000) (20,356,000) Net income........................... -- -- 16,544,000 16,544,000 Issuance of stock.................... 1,000 1,000 -- 1,000 ----- ------ ----------- ----------- Balance at July 2, 1995................ 2,000 2,000 (3,813,000) (3,811,000) Net loss............................. -- -- (319,000) (319,000) ----- ------ ----------- ----------- Balance at October 31, 1995............ 2,000 $2,000 $(4,132,000) $(4,130,000) ===== ====== =========== ===========
See accompanying notes. F-35 FCN HOLDING, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS
PERIOD FROM PERIOD FROM JULY 4, 1994 JULY 3, 1995 TO TO JULY 2, 1995 OCTOBER 31, 1995 ------------- ---------------- OPERATING ACTIVITIES Net income (loss)............................. $ 16,544,000 $ (319,000) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Amortization of programming costs........... 98,309,000 27,942,000 Depreciation................................ 17,000 13,000 Provision for doubtful accounts............. 480,000 -- Changes in operating assets and liabilities: Accounts receivable....................... (5,528,000) (656,000) Additions to programming costs ........... (107,368,000) (28,884,000) Other assets.............................. 48,000 (1,058,000) Accounts payable.......................... (376,000) (273,000) Accrued liabilities....................... (219,000) 415,000 Administration fee payable to a related party.................................... 199,000 1,345,000 Deferred revenue.......................... 1,763,000 (972,000) Fox Kids Network affiliate participation payable.................................. 11,523,000 6,898,000 Accrued programming expenditures.......... 908,000 (2,144,000) ------------- ------------ Net cash provided by operating activities..... 16,300,000 2,307,000 INVESTING ACTIVITIES Purchase of property and equipment............ (91,000) (31,000) ------------- ------------ Net cash used in investing activities......... (91,000) (31,000) FINANCING ACTIVITIES Proceeds from related parties................. 180,765,000 68,308,000 Payments to related parties................... (197,242,000) (70,267,000) ------------- ------------ Net cash used in financing activities......... (16,477,000) (1,959,000) ------------- ------------ (Decrease) increase in cash and cash equivalents.................................. (268,000) 317,000 Cash and cash equivalents at beginning of period....................................... 268,000 -- ------------- ------------ Cash and cash equivalents at end of period.... $ -- $ 317,000 ============= ============ SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION Cash paid during the period for: Interest.................................... $ 2,053,000 $ 201,000 ============= ============ Income taxes................................ $ -- $ -- ============= ============
See accompanying notes. F-36 FCN HOLDING, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OCTOBER 31, 1995 1. BASIS OF FINANCIAL STATEMENT PRESENTATION AND ORGANIZATION The accompanying consolidated financial statements include the accounts of FCN Holding, Inc. and its wholly-owned subsidiaries, Fox Kids Club, Fox Kids Countdown and Fox Storymakers (collectively "FCN Holding"). All significant intercompany transactions and accounts have been eliminated. FCN Holding is an indirect subsidiary of Fox Broadcasting Company ("Fox Broadcasting"), itself an indirect subsidiary of The News Corporation Limited. FCN Holding's largest operating entity is an indirect wholly-owned subsidiary, Fox Children's Network, Inc. ("FCN"), which began primary operations on September 8, 1990. FCN Holding produces and licenses children's animated and live-action television shows with initial exploitation on the Fox Broadcasting television network followed by distribution in ancillary markets when such rights exist. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES FISCAL YEAR-END FCN Holding's fiscal year ends on the Sunday closest to June 30. REVENUE RECOGNITION Advertising revenue is recognized as earned in the period in which the advertising commercials are telecast and are net of agency commission fees of $25,429,000 and $7,305,000 for the periods ended July 2, 1995 and October 31, 1995, respectively. Revenues from foreign and merchandising license agreements, which provide for the receipt by FCN Holding of nonrefundable guaranteed amounts, are recognized when the license period begins and the product is available pursuant to the terms of the license agreement. Amounts in excess of minimum guarantees under these license agreements are recognized when earned. Amounts received in advance of recognition of revenue are recorded as deferred revenue. FCN Holding generally provides advertisers with guaranteed ratings in connection with its domestic network broadcasts. Revenue is recorded net of estimated shortfalls, which are settled either by additional advertising time ("make goods") or cash refunds to the advertiser. FCN Holding accounts for the full amount of the estimated shortfall. PROGRAMMING COSTS Program licenses and rights include exhibition and exploitation rights acquired under license agreements and costs of developing and producing original programming for use by FCN Holding on its network. The individual film forecast method is used to amortize programming costs in which FCN Holding owns or controls distribution rights. Costs accumulated in the production of a program are amortized in the proportion that gross revenues realized bear to management's estimate of the total gross revenues expected to be received. Estimated liabilities for residuals and participations are accrued and expensed in the same manner as programming cost inventories are amortized. For programs in which the Company acquires only broadcast network rights, the Company amortizes such program costs over the estimated number of telecasts. The Company evaluates its programming rights for possible changes in the estimated number of telecasts or the possibility of impairment. Revenue estimates on a program-by-program basis are reviewed periodically by management and are revised, if warranted, based upon management's appraisal of current market conditions, such as changes in the F-37 FCN HOLDING, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) distribution marketplace or changes in expected usage of a program on the network. Based on this review, if estimated future gross revenues from a program are not sufficient to recover the unamortized costs, the unamortized programming cost will be written down to net realizable value. CONCENTRATION OF CREDIT RISKS Financial instruments which potentially subject FCN Holding to concentration of credit risk consist principally of temporary cash investments and trade receivables. FCN Holding places its temporary cash investments with high credit quality financial institutions and therefore is subject to reduced risk. FCN Holding has not incurred any losses relating to these investments. At October 31, 1995, substantially all of FCN Holding's trade receivables were from advertising agencies. FCN Holding performs periodic credit evaluations of its customers' financial condition and generally does not require collateral. Receivables generally are due within 30 days. Credit losses relating to advertising agencies consistently have been within management's expectations. CASH AND CASH EQUIVALENTS For the purposes of balance sheet classification and the statement of cash flows, FCN Holding considers all highly liquid investments that are both readily convertible into cash with original maturities when purchased of three months or less to be cash equivalents. FINANCIAL INSTRUMENTS Financial instruments are carried at historical cost which approximates fair value. PROPERTY AND EQUIPMENT Property and equipment are carried at cost and depreciation is computed using the straight-line method over their estimated useful lives of three to five years. Leasehold improvements are amortized over the lesser of the term of the lease or the estimated useful lives of the improvements using the straight-line method. INCOME TAXES FCN Holding provides for income taxes based on the liability method under Statement of Financial Accounting Standards No. 109. Under this method, deferred tax assets and liabilities are determined based on differences between financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. 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 the financial statements and accompanying notes including amortization of programming costs. Actual results could differ from those estimates. Management periodically reviews and revises its estimates of future airings and revenues for program costs, as necessary, which may result in revised amortization of its program costs and may be significantly affected by the periodic adjustments in such amortization. ADVERTISING COSTS Included in selling, general and administrative expenses are advertising expenses amounting to $1,639,000 and $1,350,000 for the year ended July 2, 1995 and for the four months ended October 31, 1995, respectively. F-38 FCN HOLDING, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 3. PROGRAMMING COSTS Programming costs, net of accumulated amortization, are comprised of the following:
JULY 2, OCTOBER 31, 1995 1995 ------------ ------------ Programming costs, broadcast................... $244,599,000 $261,078,000 Programming costs, produced.................... 89,493,000 99,730,000 Programming costs in development and production.................................... 1,298,000 3,466,000 ------------ ------------ 335,390,000 364,274,000 ------------ ------------ Accumulated amortization....................... 309,247,000 337,189,000 ------------ ------------ $ 26,143,000 $ 27,085,000 ============ ============
Based on FCN Holding's estimate of future revenues, substantially all of the unamortized released programming costs at October 31, 1995 will be amortized during the three year period ending October 31, 1998. 4. PROPERTY AND EQUIPMENT Property and equipment is comprised of the following:
JULY 2, OCTOBER 31, 1995 1995 ------- ----------- Computer equipment..................................... $93,000 $100,000 Office furniture and fixtures.......................... 4,000 28,000 Machinery and equipment................................ 41,000 41,000 Leasehold improvements................................. 32,000 32,000 ------- -------- 170,000 201,000 Less accumulated depreciation.......................... 85,000 98,000 ------- -------- $85,000 $103,000 ======= ========
5. RELATED PARTY TRANSACTIONS FCN and Twentieth Century Fox Licensing and Merchandising, a unit of Fox, Inc. ("Twentieth Fox Licensing") are parties to a Merchandising Rights Acquisition Agreement, dated as of July 1, 1990, pursuant to which FCN licenses to Twentieth Fox Licensing the worldwide merchandising and licensing rights, in perpetuity, to programming owned or controlled by FCN. In consideration for the rights granted, Twentieth Fox Licensing agreed to pay to FCN an amount equal to 100% of net profits, which equaled gross receipts less distribution fees and expenses. FCN and Twentieth Century Fox Film Corporation ("Twentieth Century Fox") are parties to a Distribution Rights Acquisition Agreement, dated as of September 1, 1990, pursuant to which FCN licensed to Twentieth Century Fox the worldwide distribution rights, in perpetuity, with respect to programming owned or controlled by FCN. In consideration for the rights granted, Twentieth Century Fox agreed to pay to FCN 100% of net profits as defined in the agreement. FCN and Fox Broadcasting are parties to an Administration Agreement, dated as of February 7, 1990, pursuant to which Fox Broadcasting agreed to provide the following services to FCN: network national advertising sales and the administration thereof, commercial trafficking and broadcast operations (including program delivery to Fox Kids Network Affiliates (see Note 8--"Fox Kids Network Affiliate Participation F-39 FCN HOLDING, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) Payable")) and overhead charges related to Fox Broadcasting in-house administrative support in the areas of research, promotion, business affairs, legal affairs and accounting. FCN agreed to pay to Fox Broadcasting a fee equal to 15% of 100% of the net advertising revenue (gross advertising revenue less advertising agency commissions) derived with respect to national commercials, commercial material or other advertising matter included or used in connection with any of the programs exhibited on the Fox Kids Network. FCN Holding leases office space on a month to month basis from a company related to Fox Broadcasting. Rent expense to this related party was $231,000 and $88,000 for the periods ended July 2, 1995 and October 31, 1995. Related companies of Fox Broadcasting have funded the operation of FCN Holding from its inception through loans to FCN Holding. All amounts derived by the operations of FCN Holding are used to reduce such outstanding borrowings. Amounts outstanding bear interest at the prime rate (8.75% at October 31, 1995). Amounts due to the related companies of Fox Broadcasting including interest totalled $10,686,000 and $8,727,000 at July 2, 1995 and October 31, 1995, respectively. 6. INCOME TAXES FCN Holding, together with other related companies of Fox Broadcasting, files consolidated federal and state income tax returns. No deferred tax assets or liabilities arising from FCN Holding's activities have been allocated. FCN Holding did not incur any current or deferred tax expense due to the utilization of prior year net operating loss carryforwards. The actual tax expense differs from the "expected" federal tax rate of 35% as follows:
PERIOD FROM PERIOD FROM JULY 4, 1994 JULY 3, 1995 TO TO JULY 2, 1995 OCTOBER 31, 1995 ------------ ---------------- Computed "expected" tax expense.............. 35 % -- % Impact of utilized net operating loss carryforward................................ (35)% -- % --- --- -- -- === ===
7. COMMITMENTS AND CONTINGENCIES Future estimated program commitments are approximately $58,648,000. FCN Holding is involved in certain legal proceedings arising from the normal course of operations. Management believes that the ultimate resolution of these matters will not have a material effect on its financial position or results of operations. FCN Holding has entered into employment agreements with several key employees extending through fiscal year 1999 requiring future payments of $1,135,000 in the one year period ended October 31, 1996, $788,000 in the one year period ended October 31, 1997 and $257,000 in the one year period ended October 31, 1998. 8. FOX KIDS NETWORK AFFILIATE PARTICIPATION PAYABLE Pursuant to the terms of the affiliation agreements ("Agreement") among Fox Broadcasting and substantially all of its affiliated television stations ("Fox Kids Network Affiliates"), the Fox Kids Network Affiliates in total are entitled to compensation which is equal to 100% of FCN's programming Net Profits (as F-40 FCN HOLDING, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) defined below). Amounts payable under these compensation arrangements are due quarterly in amounts derived pursuant to the provisions in the Agreement. Net profits are defined on a cumulative basis to include amounts actually received by FCN from the exhibition, distribution and other exploitation of FCN Holding's programs and the merchandising and other rights relating thereto, less amounts paid for administrative fees, production/license fees, distribution and merchandising fees (including those payable to FCN Holding), overhead and other expenses and reserves. 9. MAJOR CUSTOMERS AND PROPERTIES For the period ended July 2, 1995, FCN Holding earned net revenues from two significant customers of approximately $16,662,000 (10%) and $16,061,000 (10%). For the period ended October 31, 1995, FCN earned net revenues from three significant customers of approximately $5,527,000 (12%), $5,706,000 (12%) and $4,724,000 (10%). For the periods ended July 2, 1995 and October 31, 1995, FCN Holding earned net revenues from one significant property (Power Rangers) of $55,805,000 (33%) and $10,847,000 (23%), respectively. 10. SUBSEQUENT EVENT On November 1, 1995 (the "Effective Date") FCN Holding and Saban Entertainment, Inc. ("Saban") formed Fox Kids Worldwide, L.L.C. (the "LLC"), a limited liability company, for the purpose of jointly expanding the worldwide childrens' businesses of FCN Holding and Saban. Since the Effective Date, FCN Holding and Saban have been operated by their respective managements subject to the overall supervision of the members committee of the LLC. THE REORGANIZATION Fox Kids Worldwide Inc. was incorporated in August 1996 to act as a holding company of FCN Holding, Saban and the LLC. Between August 1996 and August 1997, it conducted no business or operations. On August 1, 1997, in connection with Fox Kids Worldwide Inc.'s acquisition of a controlling interest in International Family Entertainment, Inc., (i) Fox Broadcasting Sub, Inc., a wholly owned indirect subsidiary of Fox Broadcasting, exchanged its capital stock in FCN Holding, which indirectly owned the FCN, for 7,920,000 shares of Class B Common Stock of Fox Kids Worldwide Inc., (ii) the other stockholder of FCN Holding exchanged its capital stock in FCN Holding for an aggregate of 160,000 shares of Class A Common Stock of Fox Kids Worldwide Inc., (iii) Haim Saban and the other stockholders of Saban exchanged their capital stock of Saban for an aggregate of 7,920,000 shares of Class B Common Stock of Fox Kids Worldwide Inc. and (iv) all outstanding management options to purchase Saban capital stock became options to purchase an aggregate of 646,548 shares of Class A Common Stock of Fox Kids Worldwide Inc. In addition, Fox Broadcasting exchanged its preferred, non-voting interest in the LLC and its $50 million contingent note receivable from the LLC for a new approximately $108.6 million subordinated note from Fox Kids Worldwide Inc. (which also included approximately $8.6 million of intercompany indebtedness). As a result of these transactions, FCN Holding, FCN, Saban and the LLC became direct or indirect wholly owned subsidiaries of Fox Kids Worldwide Inc. F-41 REPORT OF INDEPENDENT AUDITORS Board of Directors Saban Entertainment, Inc. We have audited the accompanying consolidated balance sheets of Saban Entertainment, Inc. as of May 31, 1995 and as of October 31, 1995, and the related consolidated statements of operations, stockholders' equity, and cash flows for the year ended May 31, 1995 and for the five months ended October 31, 1995. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Saban Entertainment, Inc. at May 31, 1995, and at October 31, 1995 and the results of its operations and its cash flows for the year ended May 31, 1995 and for the five months ended October 31, 1995, in conformity with generally accepted accounting principles. Ernst & Young LLP Los Angeles, California September 27, 1996 except for the third paragraph of Note 11 as to which the date is September 29, 1997. F-42 SABAN ENTERTAINMENT, INC. CONSOLIDATED BALANCE SHEETS
MAY 31, OCTOBER 31, 1995 1995 ------------ ------------ ASSETS Cash and cash equivalents........................... $ 14,584,000 $ 16,207,000 Restricted cash..................................... 5,000,000 5,000,000 Accounts receivable, net of allowance for doubtful accounts of $1,385,000 at May 31, 1995 and $1,385,000 at October 31, 1995..................... 37,338,000 30,157,000 Amounts receivable from related parties............. 3,796,000 3,832,000 Programming costs, less accumulated amortization.... 115,873,000 118,210,000 Property and equipment, at cost, less accumulated depreciation ...................................... 3,630,000 7,079,000 Deferred income taxes............................... 35,473,000 26,186,000 Other assets........................................ 2,503,000 808,000 ------------ ------------ Total assets........................................ $218,197,000 $207,479,000 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY Accounts payable.................................... $ 6,818,000 $ 8,817,000 Accrued liabilities................................. 29,606,000 23,411,000 Deferred revenue.................................... 62,755,000 48,155,000 Accrued residuals and participations................ 9,672,000 10,074,000 Income taxes payable................................ 36,378,000 15,680,000 Deferred income taxes............................... 9,233,000 766,000 Debt................................................ 5,623,000 5,605,000 Amounts payable to related parties.................. -- -- ------------ ------------ 160,085,000 112,508,000 Commitments and contingencies Stockholders' equity: Common stock, $.01 par value, 10,000 shares authorized, 800 shares issued and outstanding at May 31, 1995 and October 31, 1995 ............... -- -- Contributed capital............................... 11,751,000 11,751,000 Cumulative translation adjustment................. (71,000) 46,000 Retained earnings................................. 46,432,000 83,174,000 ------------ ------------ Total stockholders' equity.......................... 58,112,000 94,971,000 ------------ ------------ Total liabilities and stockholders' equity.......... $218,197,000 $207,479,000 ============ ============
See accompanying notes. F-43 SABAN ENTERTAINMENT, INC. CONSOLIDATED STATEMENTS OF OPERATIONS
FIVE MONTHS ENDED YEAR ENDED OCTOBER 31, MAY 31, 1995 1995 ------------ ----------------- Revenues......................................... $242,468,000 $105,130,000 Costs and expenses: Production and programming..................... 117,557,000 42,022,000 Selling, general and administrative............ 51,894,000 11,538,000 ------------ ------------ Operating income................................. 73,017,000 51,570,000 Interest expense................................. 1,315,000 539,000 ------------ ------------ Income before provision for income taxes......... 71,702,000 51,031,000 Provision for income taxes....................... 27,027,000 14,289,000 ------------ ------------ Net income....................................... $ 44,675,000 $ 36,742,000 ============ ============
See accompanying notes. F-44 SABAN ENTERTAINMENT, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
COMMON STOCK CUMULATIVE -------------- CONTRIBUTED TRANSLATION RETAINED SHARES AMOUNT CAPITAL ADJUSTMENT EARNINGS TOTAL ------ ------ ----------- ----------- ------------ ------------ Balance at May 31, 1994....... 1,067 $-- $11,751,000 $(255,000) $ 41,757,000 $ 53,253,000 Exchange gain on translation of foreign subsidiaries' financial statements....... -- -- -- 184,000 -- 184,000 Purchase of minority stockholder shares......... (267) -- -- -- (40,000,000) (40,000,000) Net income.................. -- -- -- -- 44,675,000 44,675,000 ----- ---- ----------- --------- ------------ ------------ Balance at May 31, 1995....... 800 -- 11,751,000 (71,000) 46,432,000 58,112,000 Exchange gain on translation of foreign subsidiaries' financial statements....... -- -- -- 117,000 -- 117,000 Net income.................. -- -- -- -- 36,742,000 36,742,000 ----- ---- ----------- --------- ------------ ------------ Balance at October 31, 1995... 800 $-- $11,751,000 $ 46,000 $ 83,174,000 $ 94,971,000 ===== ==== =========== ========= ============ ============
See accompanying notes. F-45 SABAN ENTERTAINMENT, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS
FIVE MONTHS ENDED YEAR ENDED OCTOBER 31, MAY 31, 1995 1995 ------------- ------------ OPERATING ACTIVITIES Net income....................................... $ 44,675,000 $ 36,742,000 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Amortization of programming costs.............. 84,109,000 32,651,000 Depreciation................................... 1,296,000 571,000 Cumulative translation adjustment.............. 184,000 117,000 Provision for doubtful accounts................ 1,000,000 Changes in operating assets and liabilities: Restricted cash.............................. (4,701,000) -- Accounts receivable.......................... (100,000) 7,181,000 Amounts receivable from related parties...... (2,649,000) (36,000) Additions to programming costs............... (114,903,000) (34,988,000) Other assets................................. (1,752,000) 1,695,000 Accounts payable............................. 2,610,000 1,999,000 Accrued liabilities.......................... 26,127,000 (6,195,000) Accrued residuals and participations......... (2,663,000) 402,000 Accrued interest to related parties.......... (2,359,000) -- Income taxes payable and deferred income taxes....................................... 153,000 (19,878,000) Deferred revenue............................. 47,991,000 (14,600,000) ------------- ------------ Net cash (used in) provided by operating activities...................................... 79,018,000 5,661,000 INVESTING ACTIVITIES Purchase of property and equipment............... (2,242,000) (4,020,000) ------------- ------------ Net cash used in investing activities............ (2,242,000) (4,020,000) FINANCING ACTIVITIES Proceeds from bank borrowings.................... 7,395,000 11,000,000 Payments on bank borrowings...................... (21,663,000) (11,018,000) Proceeds from related parties.................... 1,000,000 -- Payments to related parties...................... (12,773,000) -- Purchase of minority stockholder shares.......... (40,000,000) -- ------------- ------------ Net cash provided by (used in) financing activities...................................... (66,041,000) (18,000) ------------- ------------ Increase in cash and cash equivalents............ 10,735,000 1,623,000 Cash and cash equivalents at beginning of year... 3,849,000 14,584,000 ------------- ------------ Cash and cash equivalents at end of year......... $ 14,584,000 $ 16,207,000 ============= ============ SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION Cash paid during the year for: Interest (net of amounts capitalized).......... $ 3,280,000 $ 347,000 ============= ============ Income taxes................................... $ 26,884,000 $ 34,156,000 ============= ============
See accompanying notes. F-46 SABAN ENTERTAINMENT, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OCTOBER 31, 1995 1. BASIS OF FINANCIAL STATEMENTS PRESENTATION AND ORGANIZATION Saban Entertainment, Inc. and its subsidiaries (collectively "Saban"), is a broad-based entertainment company specializing in the creation, production, acquisition, distribution, merchandising and licensing of animated and live- action children's programming in the worldwide entertainment marketplace. Saban is one of the largest independent suppliers of children's programming in the world and its library of children's television programming is one of the largest children's libraries in the world. Saban provides programming in all dayparts for network, first-run syndication and cable television for both domestic and international television. In the United States, Saban syndicates its programming under the Saban Kids Network name. In addition, Saban is involved in the creation and production of music and the acquisition of international distribution rights to telefilms and mini series. Saban's operations are conducted through offices in the United States, France, Switzerland, Germany, Italy and the United Kingdom. The accompanying consolidated financial statements include the accounts of Saban Entertainment, Inc. and subsidiaries. All significant intercompany transactions and accounts have been eliminated. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES REVENUE RECOGNITION Revenues from television, music and merchandising lease agreements, which provide for the receipt by the Company of nonrefundable guaranteed amounts, are recognized when the lease period begins, collectibility is reasonably assured and the product is available pursuant to the terms of the lease agreement. Amounts in excess of minimum guarantees under these lease agreements are recognized when earned. Amounts received in advance of recognition of revenue are recorded as deferred revenue. Barter revenues, representing the exchange of programming for advertising time on a television station, are recognized upon the airing of an advertisement during such advertising time and related programming costs are amortized in accordance with the individual film forecast method. PROGRAMMING COSTS Programming costs, consisting of direct production costs, acquisition of story rights, costs to acquire distribution rights, allocable production overhead, interest and exploitation costs (which benefit future periods) are capitalized as incurred. The individual film forecast method is used to amortize programming costs in which Saban owns or controls distribution rights. Costs accumulated in the production of a program are amortized in the proportion that gross revenues realized bear to management's estimate of the total gross revenues expected to be received. Estimated liabilities for residuals and participations are accrued and expensed in the same manner as programming cost inventories are amortized. Revenue estimates on a program-by-program basis are reviewed periodically by management and are revised, if warranted, based upon management's appraisal of current market conditions. Based on this review, if estimated future gross revenues from a program are not sufficient to recover the unamortized costs, the unamortized programming cost will be written down to net realizable value. CONCENTRATION OF CREDIT RISKS Financial instruments which potentially subject Saban to concentration of credit risk consist principally of temporary cash investments and trade receivables. Saban places its temporary cash investments principally in a F-47 SABAN ENTERTAINMENT, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) mutual fund which invests in government securities and therefore are subject to reduced risk. Saban has not incurred any losses relating to these investments. Saban leases its product to distributors and broadcasters throughout the world. Saban performs periodic credit evaluations of its customers' financial condition and generally does not require collateral. Generally, payment is received in full or in part prior to Saban's release of product to such distributors and broadcasters. At October 31, 1995, substantially all of Saban's trade receivables were from customers in the entertainment or broadcast industries. Receivables generally are due within 30 days. Credit losses relating to customers in the entertainment and broadcast industries consistently have been within management's expectations. CASH AND CASH EQUIVALENTS For the purposes of balance sheet classification and the statement of cash flows, Saban considers all highly liquid investments that are both readily convertible into cash with original maturities when purchased of three months or less to be cash equivalents. RESTRICTED CASH Restricted cash represents amounts held by financial institutions as collateral on outstanding debt. FINANCIAL INSTRUMENTS Financial instruments are carried at historical cost which approximates fair value. PROPERTY AND EQUIPMENT Property and equipment are carried at cost and depreciation is computed using the straight-line method over their estimated useful lives of five years. Leasehold improvements are amortized over the lesser of the term of the lease or the estimated useful lives of the improvement using the straight-line method. FOREIGN CURRENCY TRANSLATION AND CUMULATIVE ADJUSTMENT Saban International N.V. ("SINV"), a wholly-owned subsidiary of Saban uses the U.S. dollar as the functional currency. Saban International Paris S.A.R.L. ("SIP"), Saban Entertainment Germany GmbH and Saban Merchandising and Licensing GmbH and Saban Entertainment (UK) Limited, all foreign subsidiaries of Saban, use local currency as the functional currency. Assets and liabilities are translated into U.S. dollars at current exchange rates. Revenue and expenses have been translated into U.S. dollars based generally on the average rates prevailing during the period. Gains and losses arising from foreign currency transactions are included in determining net income for the period. The aggregate transaction gains for the years ended May 31, 1995, and for the five months ended October 31, 1995 were $577,000 and $135,000, respectively. The cumulative translation adjustment in stockholders' equity at May 31, 1994 and 1995, and at October 31, 1995, represents Saban's net unrealized exchange (losses) gains on the translation of foreign subsidiaries' financial statements. INCOME TAXES In February 1992, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards ("FAS") No. 109, "Accounting for Income Taxes." Saban adopted the provisions of the new F-48 SABAN ENTERTAINMENT, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) standard in its financial statements for the year ended May 31, 1994. As permitted by the FAS, prior year financial statements have not been restated to reflect the change in accounting method. The cumulative effect as of June 1, 1993, of adopting FAS 109 was not material to Saban's financial statements. Under FAS 109, the liability method is used in accounting for income taxes. Under this method, deferred tax assets and liabilities are determined based on differences between financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. Prior to the adoption of FAS 109, income tax expense was determined using the deferred method. Deferred tax expense was based on items of income and expense that were reported in different years in the financial statements and the tax returns and were measured at the tax rate in effect in the year the difference originated. STOCK-BASED COMPENSATION Saban accounts for its stock compensation arrangements under the provisions of Accounting Principles Board No. 25, "Accounting for Stock Issued to Employees" and intends to continue to do so. 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 the financial statements and accompanying notes including amortization of programming costs. Actual results could differ from those estimates. Management periodically reviews and revises its estimates of future airings and revenues for program costs, as necessary, which may result in revised amortization of its program costs and may be significantly affected by the periodic adjustments in such amortization. 3. PROGRAMMING COSTS Programming costs, net of accumulated amortization, is comprised of the following:
MAY 31, 1995 ----------------------------------------- ACCUMULATED NET PROGRAMMING COST AMORTIZATION COSTS ------------ ------------ --------------- Children's programming............... $203,765,000 $147,813,000 $ 55,952,000 Movies and mini-series............... 101,656,000 76,211,000 25,445,000 Projects in production............... 33,008,000 -- 33,008,000 Development.......................... 1,468,000 -- 1,468,000 ------------ ------------ ------------ $339,897,000 $224,024,000 $115,873,000 ============ ============ ============
OCTOBER 31, 1995 ----------------------------------------- ACCUMULATED NET PROGRAMMING COST AMORTIZATION COSTS ------------ ------------ --------------- Children's programming............... $237,286,000 $177,232,000 $ 60,054,000 Movies and mini-series............... 112,554,000 79,443,000 33,111,000 Projects in production............... 24,177,000 -- 24,177,000 Development.......................... 868,000 -- 868,000 ------------ ------------ ------------ $374,885,000 $256,675,000 $118,210,000 ============ ============ ============
F-49 SABAN ENTERTAINMENT, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) Based on Saban's estimate of future revenues, approximately 70% of unamortized released programming costs at October 31, 1995 will be amortized during the three years ending October 31, 1998. Interest in the amount of $304,000 and $32,000 was capitalized to programming costs during the years ended May 31, 1995 and for the five months ended October 31, 1995, respectively. 4. PROPERTY AND EQUIPMENT Property and equipment is comprised of the following:
MAY 31, OCTOBER 31, 1995 1995 ---------- ----------- Studio equipment ....................................... $5,280,000 $ 5,832,000 Office furniture and fixtures........................... 907,000 1,505,000 Leasehold improvements.................................. 1,095,000 3,965,000 Other................................................... 64,000 64,000 ---------- ----------- 7,346,000 11,366,000 Less accumulated depreciation........................... 3,716,000 4,287,000 ---------- ----------- $3,630,000 $ 7,079,000 ========== ===========
5. DEBT Debt is comprised of the following:
MAY 31, OCTOBER 31, 1995 1995 ---------- ----------- Imperial Bank; secured revolving line of credit; interest at prime rate (8.75% at October 31, 1995) plus .5% due monthly; maximum borrowings of $25,000,000 (terminated on December 4, 1995)....................... $ -- $ -- DeNationale Investeringsbank N.V.; secured line of credit due July 31, 1997; interest at three month or six month LIBOR (5.94% and 5.88%, respectively, at October 31, 1995) plus 0.4% paid quarterly; maximum borrowings of $5,000,000............................................. 5,000,000 5,000,000 Coficine; secured revolving credit facility due March 28, 1996; interest at the bank's basis rate (8.1% at October 31, 1995) plus 1% paid quarterly; maximum borrowings of FF 7,200,000............................. 623,000 605,000 ---------- ---------- $5,623,000 $5,605,000 ========== ==========
In July 1995, Saban and SINV separately entered into credit agreements with Imperial Bank ("Imperial"), as agent, and a group of lenders for secured revolving credit facilities ("Credit Facilities") aggregating $50 million maturing on July 31, 1998. Interest on the borrowings is at either the prime rate (8.75% at October 31, 1995) plus .5% or .25% depending on Saban's and SINV's tangible net worth or at three month or six month LIBOR (5.94% and 5.88%, respectively, at October 31, 1995) plus 2.25% or 2% depending on Saban's and SINV's tangible net worth. Interest is payable at the end of the interest period which is either one, three or six months. Saban and SINV are required to pay a quarterly commitment fee of .25% per annum of the average daily unused portion of the commitment. Saban and SINV also paid a loan fee amounting to .75% of the commitment. The combined amount available for borrowing under the Credit Facilities at any time is limited in accordance with a formula based upon the value of collateral in Saban's and SINV's borrowing bases. The borrowing bases include on and off balance sheet receivables and amounts attributable to the value of Saban's F-50 SABAN ENTERTAINMENT, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) and SINV's film library. Saban's credit facility is secured by substantially all of the assets of Saban and its subsidiaries (excluding SINV and other foreign subsidiaries of Saban) and SINV's credit facility is secured by substantially all of the assets of Saban and its subsidiaries. The Credit Facilities restrict the payment of dividends. The Credit Facilities contain restrictive covenants regarding, among other things, additional indebtedness, payments and advances for product, the maintenance of certain financial ratios and restrictions on the disposition of assets. At October 31, 1995 Saban and SINV were in compliance or had obtained waivers for those covenants. At October 31, 1995 no amounts have been borrowed under the Credit Facilities. In June 1993, SINV entered into a credit agreement with Imperial as agent and DeNationale Investeringsbank N.V. (the "Bank Facility"). An additional bank, Banque Nationale de Paris was added to the Bank Facility in March 1994. SINV paid a quarterly commitment fee of .5% per annum of the average daily unused portion of the commitment. Substantially all of SINV's cash collections were paid into accounts controlled by Imperial and applied to repayment of borrowings under the Bank Facility. The restricted cash balance of $299,000 at May 31, 1994, represented cash held by Imperial and not yet transferred to Saban. The amount that SINV borrowed was based upon the value of collateral in the borrowing base which consists principally of accounts receivable. All borrowings were collateralized by substantially all of the assets of Saban. Further, Saban agreed to maintain, on a quarterly average basis, $1,000,000 in compensating balances at Imperial. The Bank Facility contained restrictive covenants regarding, among other things, additional indebtedness, payments and advances for product, the maintenance of certain financial ratios and restrictions on the disposition of assets. On December 4, 1995, the Bank Facility was replaced by the Credit Facilities and any outstanding obligation plus interest was paid. SIP has a revolving credit facility with Coficine bank which provides for borrowings against project receivables up to a maximum of FF 7,200,000 ($1,475,000 at October 31, 1995). In March 1996 the outstanding obligation plus interest was paid in full. In September 1994, SIP entered into a credit agreement with DeNationale Investeringsbank N.V. ("NIB"). The facility provides for maximum borrowings of $5,000,000. The facility is secured by a $5,000,000 deposit at NIB pledged by SINV. Such $5,000,000 deposit is included in restricted cash at October 31, 1995 and at May 31, 1995. In April 1996 the outstanding obligation plus interest was paid in full and SIP and NIB entered into a new agreement for a facility with similar terms, providing maximum borrowings of $8,000,000. The new facility is secured by an $8,000,000 deposit at NIB pledged by SINV. 6. RELATED PARTY TRANSACTIONS In March 1995, Saban purchased all of the outstanding shares of Saban held by a former minority stockholder. Receivables from stockholders and related parties consist of the following:
MAY 31 OCTOBER 31 1995 1995 ---------- ---------- Advances due from the Chairman and Chief Executive Officer of Saban ("Haim Saban"), or entities controlled by Haim Saban, interest at prime rate (8.75% at October 31, 1995) plus 1% and due on demand.................... $2,649,000 $2,610,000 Advances to certain non-stockholder officers and directors of Saban ($885,000 at 5% and $337,000 noninterest bearing with varying due dates)............ 1,147,000 1,222,000 ---------- ---------- $3,796,000 $3,832,000 ========== ==========
F-51 SABAN ENTERTAINMENT, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) An outside director of Saban acts as a legal consultant to Saban. Fees paid to this director were approximately $153,000 and $62,000 for the years ended May 31, 1995 and for the five months ended October 31, 1995, respectively. In September 1994, Saban entered into a music services agreement (the "Music Agreement") with Haim Saban. The Music Agreement remains in effect until August 31, 2001. Under the terms of the Music Agreement, all original theme music, underscore, cues and songs for use in all programming produced by Saban will be supplied through Haim Saban. Saban has been granted the non-exclusive, worldwide, perpetual license to (i) synchronize and perform compositions in theatrical motion pictures and (ii) synchronize composition in all other forms of programming and has the royalty-free right to use the compositions in articles of merchandise such as home video units, video games and interactive toys. All music publishing income earned in connection with such musical compositions is retained by Haim Saban. As of October 31, 1995, no amounts were owed to Haim Saban pursuant to the terms of the Music Agreement. Saban currently licenses and distributes its entertainment properties (e.g., motion pictures, television programs, merchandising and licensing rights) in Israel through Duveen Trading Ltd. ("Distributor"), a corporation owned wholly by Haim Saban's brother. The term of the agreement extends through December 31, 1997, subject to extension by Saban for an additional three years. Duveen Trading Ltd. is not obligated to make any payments to Saban under this agreement. 7. COMMITMENTS AND CONTINGENCIES Saban leased office space in Burbank, California, under a ten year lease which was terminated in December 1995, and a lease termination fee of $305,000 was paid. Saban also leases office space in New York City under a three year lease which is cancelable after the end of each year by payment of a termination fee. In addition, Saban leases office space in Paris, France, Cologne, Germany and London, England under nine year, five year and three year operating leases, respectively. The Paris, France lease provides for termination on February 28, 1999 and February 28, 2002, both upon six months advance written notice. The London, England lease provides for early termination upon six months advance written notice. In July 1995, Saban entered into a 10 year lease which commenced on April 1, 1996 for office space in Los Angeles, California. The lease contains two separate five-year extension options and provides for early termination at the end of the sixth and eighth years upon payment of a termination fee. The lease calls for monthly payments plus maintenance and property tax payments. Saban also has two leases for production facilities, one is a short-term lease in Los Angeles, California originally expiring in November 1995 and subsequently extended to March 1997, and the other is a two year lease in Valencia, California expiring in January 1997 and subject to two separate one-year extension options. Noncancelable future minimum payments for the remainder of the initial, noncancelable lease periods are as follows:
TWELVE MONTHS ENDED OCTOBER 31, - ------------------- 1996.......................................................... $ 2,449,000 1997.......................................................... 2,921,000 1998.......................................................... 1,838,000 1999.......................................................... 2,589,000 2000.......................................................... 3,157,000 Thereafter.................................................... 20,105,000 ----------- $33,059,000 ===========
F-52 SABAN ENTERTAINMENT, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) Rent expense for the years ended May 31, 1995 and for the five months ended October 31, 1995, net of amounts capitalized, was approximately $797,000 and $365,000, respectively. Saban is involved in various lawsuits, both as a plaintiff and defendant, in the ordinary course of its business. Based on an evaluation which included consultation with counsel concerning legal and factual issues involved, management is of the opinion that the foregoing claims and lawsuits will not have a material adverse effect on Saban's consolidated financial position. Saban has entered into employment agreements with certain key members of management including Haim Saban. Such agreements are for terms ranging from one to seven years and generally include bonus provisions. Future minimum payments under these agreements approximate $20,939,000 of which $5,184,000 is due for the twelve months ended October 31, 1996, $5,104,000 is due in the twelve months ended October 31, 1997, $4,434,000 is due in the twelve months ended October 31, 1998 and $6,216,000 is due thereafter. Effective June 1994, Saban issued to two employees and a consultant options to purchase an aggregate of 48.981 shares of common stock, 9.796 of which were exercisable at October 31, 1995. These options vest ratably over five years and are exercisable at $122,496 per share, which approximates the fair market value at the time of grant. No options have been exercised at October 31, 1995. With respect to termination for any reason, so long as the Company is not public, the Company will purchase from the employee and the employee will sell to the Company any and all option shares owned by the employee and the option granted to the employee for an amount equal to the fair market value of the option shares owned by the employee plus the fair market value of the option shares with respect to which the employee's option has vested but not exercised less the exercise price. Included in selling, general and administrative expenses is $11,000,000 and $2,400,000 for the year ended May 31, 1995 and the five months ended October 31, 1995, respectively, and in accrued liabilities is $11,000,000 and $13,400,000 at May 31, 1995 and October 31, 1995, respectively, related to compensation recorded in connection with these options. As of October 31, 1995, 48.981 shares of common stock are reserved for future issuance related to options. 8. PROFIT SHARING PLAN Saban has a qualified tax deferred profit sharing plan (the "Plan") for all of its eligible employees. Under the Plan, employees become eligible on the first January 1 following such employees' completion of six months of service with Saban. Each participant is permitted to make voluntary contributions, not to exceed 15% of his or her respective compensation and the applicable statutory limitation, which are immediately 100% vested. Saban, at the discretion of the Board of Directors, may make matching contributions to the Plan. Related expense for the years ended May 31, 1995, and for the five months ended October 31, 1995 was approximately $40,000 and $10,000, respectively. 9. INCOME TAXES Effective June 1, 1993, Saban changed its method of accounting for income taxes from the deferred method to the liability method required by FAS 109, "Accounting for Income Taxes" (see Note 2 "Income Taxes"). As permitted under the new rules, prior years' financial statements have not been restated. The cumulative effect of adopting FAS 109 as of June 1, 1993, was not material to Saban's financial statements. F-53 SABAN ENTERTAINMENT, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of Saban's deferred tax liabilities and assets are as follows:
MAY 31, OCTOBER 31, 1995 1995 ------------ ------------ Deferred tax liabilities: Accounts receivable................................ $ 3,181,000 $ 563,000 Tax over book amortization......................... 6,052,000 -- State taxes........................................ -- 203,000 ------------ ------------ Total deferred tax liabilities..................... $ 9,233,000 $ 766,000 Deferred tax assets: State taxes........................................ $ 1,511,000 $ -- Deferred revenue................................... 20,268,000 18,244,000 Accrued expenses and reserves...................... 12,015,000 4,590,000 Tax over book amortization......................... -- 2,299,000 Other.............................................. 1,679,000 1,053,000 ------------ ------------ Total deferred tax assets.......................... 35,473,000 26,186,000 Valuation allowance for deferred tax assets........ -- -- ------------ ------------ Net deferred tax assets............................ 35,473,000 26,186,000 ------------ ------------ Net deferred tax liabilities (assets).............. $(26,240,000) $(25,420,000) ============ ============ For financial reporting purposes, income before income taxes includes the following components: FIVE MONTHS YEAR ENDED ENDED MAY 31, OCTOBER 31, 1995 1995 ------------ ------------ Pretax income: United States.................................... $ 56,193,000 $ 33,872,000 Foreign.......................................... 15,509,000 17,159,000 ------------ ------------ $ 71,702,000 $ 51,031,000 ============ ============
Significant components of the provision for income taxes are as follows:
YEAR ENDED FIVE MONTHS ENDED MAY 31, OCTOBER 31, 1995 1995 ------------ ----------------- Current: Federal....................................... $ 47,213,000 $11,514,000 State......................................... 8,777,000 2,802,000 Foreign....................................... 1,539,000 489,000 ------------ ----------- 57,529,000 14,805,000 Deferred: Federal....................................... $(25,776,000) $ (301,000) State......................................... (4,726,000) (215,000) Foreign....................................... -- -- ------------ ----------- (30,502,000) (516,000) ------------ ----------- $ 27,027,000 $14,289,000 ============ ===========
F-54 SABAN ENTERTAINMENT, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) The reconciliation of income tax computed at the U.S. federal statutory tax rates to income tax expense is:
YEAR ENDED FIVE MONTHS ENDED MAY 31, 1995 OCTOBER 31, 1995 ------------ ----------------- Tax at U.S. statutory rates.................... 35% 35% State taxes, net of federal benefit............ 6 5 Foreign subsidiary's income not subject to state or federal tax.......................... (7) (13) Foreign taxes.................................. 2 1 Other.......................................... 2 0 --- --- 38% 28% === ===
Undistributed earnings of Saban's foreign subsidiaries amounted to approximately $61,000,000 at October 31, 1995. Those earnings are considered to be indefinitely reinvested and, accordingly, no provision for U.S. federal and state income taxes has been provided thereon. Upon distribution of those earnings in the form of dividends or otherwise, Saban would be subject to both U.S. income taxes (subject to an adjustment for foreign tax credits) and withholding taxes payable to the various foreign countries. Determination of the amount of unrecognized deferred U.S. income tax liability is not practicable because of the complexities associated with its hypothetical calculation; however, unrecognized foreign tax credit carryforwards would be available to reduce some portion of the U.S. liability. 10. SIGNIFICANT CUSTOMERS AND PROPERTIES AND GEOGRAPHICAL INFORMATION Saban operates in one business segment which is the acquisition, production and worldwide distribution and leasing of entertainment properties. For the year ended May 31, 1995, Saban earned revenues from one significant customer of $26,308,000 (11%). For the five months ended October 31, 1995, Saban earned revenues from one significant customer of approximately $33,332,000 (32%). For the year ended May 31 1995, and for the five months ended October 31, 1995, Saban earned revenues from one significant property (Power Rangers) of $174,389,000 (72%) and $68,975,000 (66%), respectively. Geographic information concerning Saban's operations is as follows:
FIVE MONTHS ENDED YEAR ENDED OCTOBER 31, MAY 31, 1995 1995 ------------ ------------ Revenues: Domestic........................................... $172,239,000 $ 61,671,000 International, principally Europe(/2/)............. 70,229,000 43,459,000 ------------ ------------ Total................................................ 242,468,000 105,130,000 Operating profit:(/1/) Domestic........................................... 97,433,000 42,128,000 International, principally Europe(/2/)............. 27,478,000 20,980,000 ------------ ------------ Total................................................ 124,911,000 63,108,000 Selling, general and administrative expenses......... 51,894,000 11,538,000 Interest expense..................................... 1,315,000 539,000 ------------ ------------ Income before provision for income taxes............. $ 71,702,000 $ 51,031,000 ============ ============ Identifiable assets: Domestic........................................... $ 89,772,000 $ 82,145,000 International, principally Europe(/2/)............. 128,425,000 125,334,000 ------------ ------------ Total................................................ $218,197,000 $207,479,000 ============ ============
- -------- (1) For purposes of this presentation, operating profit is total revenues less amortization of programming costs, residuals and profit participations. (2) International amounts relate principally to Western Europe in connection with the Company's subsidiary, SINV, a Netherlands Antilles company with offices in Switzerland. F-55 SABAN ENTERTAINMENT, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 11. SUBSEQUENT EVENTS On April 16, 1996, Saban acquired the stock of Creativite & Developpement SA ("C&D"), a leading Paris-based producer of family entertainment for $2,869,000, payable $1,721,000 upon closing (April 16, 1996) and $1,148,000 payable on April 16, 1997 and is secured by a letter of credit. Saban accounted for the acquisition as a purchase. No goodwill was recorded as the purchase price was allocated to the respective assets and liabilities. The acquisition included the international distribution rights to over 400 half- hour episodes of children's programming. In December 1995, Saban purchased from Vesical Limited ("Vesical") its interest and rights to certain television programming and certain account receivable balances for $12,000,000, payable $7,200,000 upon closing (April 18, 1996) and $4,800,000 payable on April 18, 1997 and is secured by a letter of credit. Saban allocated the purchase price between the account receivable balances and the television programming rights based upon the respective assets fair market values using a discounted cash flow analysis. THE REORGANIZATION Fox Kids Worldwide, Inc. was incorporated in August 1996 to act as a holding company of FCN Holding, Saban and the LLC. Between August 1996 and August 1997, it conducted no business or operations. On August 1, 1997, in connection with Fox Kids Worldwide, Inc.'s acquisition of a controlling interest in International Family Entertainment, Inc., (i) Fox Broadcasting Sub, Inc., a wholly owned indirect subsidiary of Fox Broadcasting, exchanged its capital stock in FCN Holding, which indirectly owned the Fox Children's Network, Inc. ("FCN"), for 7,920,000 shares of Class B Common Stock of Fox Kids Worldwide, Inc., (ii) the other stockholder of FCN Holding exchanged its capital stock in FCN Holding for an aggregate of 160,000 shares of Class A Common Stock of Fox Kids Worldwide, Inc., (iii) Haim Saban and the other stockholders of Saban exchanged their capital stock of Saban for an aggregate of 7,920,000 shares of Class B Common Stock of Fox Kids Worldwide, Inc. and (iv) all outstanding management options to purchase Saban capital stock became options to purchase an aggregate of 646,548 shares of Class A Common Stock of Fox Kids Worldwide, Inc. In addition, Fox Broadcasting exchanged its preferred, non-voting interest in the LLC and its $50 million contingent note receivable from the LLC for a new approximately $108.6 million subordinated note from Fox Kids Worldwide, Inc. (which also included approximately $8.6 million of intercompany indebtedness). As a result of these transactions, FCN Holding, FCN, Saban and the LLC became direct or indirect wholly owned subsidiaries of Fox Kids Worldwide, Inc. OTHER RELATED PARTY TRANSACTIONS From time to time, Saban has loaned and advanced funds to Haim Saban. In connection with the formation of the LLC and as inducement to Haim Saban to enter into certain documentation in connection with the formation of the LLC, on December 22, 1995, Saban forgave in full the loan plus accrued interest owing from Haim Saban in the amount of approximately $2,700,000. In connection with Haim Saban's employment agreement, dated December 22, 1995, with the LLC, the LLC agreed to reimburse Haim Saban for all out-of-pocket costs and expenses for domestic and international travel, including private air charter which may include aircraft owned directly or indirectly by Haim Saban. F-56 INTERNATIONAL FAMILY ENTERTAINMENT, INC. CONSOLIDATED BALANCE SHEETS
(UNAUDITED) DECEMBER 31, 1996 JUNE 30, 1997 ----------------- ------------- ASSETS Current assets Cash and cash equivalents.................... $ 4,997,000 $ 4,275,000 Investment in marketable securities.......... 9,053,000 5,554,000 Accounts receivable, net of allowances of $4,662,000 and $4,579,000................... 121,359,000 127,465,000 Film rights, current portion................. 97,441,000 92,037,000 Prepaid expenses and other................... 7,005,000 13,692,000 ------------ ------------ Total current assets....................... 239,855,000 243,023,000 Property and equipment, net of accumulated depreciation and amortization of $29,860,000 and $34,398,000............................... 62,877,000 61,139,000 Film rights.................................... 144,680,000 121,660,000 Long-term accounts receivable, net of allow- ances of $126,000 and $81,000................. 17,530,000 13,142,000 Investment in equity securities--related par- ty............................................ 35,458,000 65,160,000 Other investments, net of deferred gain of $2,616,000.................................... 14,889,000 14,729,000 Goodwill, net of accumulated amortization of $8,830,000 and $9,970,000..................... 48,517,000 47,377,000 Deferred tax benefit........................... 1,076,000 1,076,000 Other assets................................... 3,801,000 4,076,000 ------------ ------------ $568,683,000 $571,382,000 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities Accounts payable............................. $ 12,874,000 $ 8,980,000 Accrued liabilities.......................... 11,756,000 16,022,000 Accrued participations and residuals......... 15,613,000 12,303,000 Current portion of film rights payable....... 44,050,000 48,117,000 Current maturities of debt................... 1,205,000 2,110,000 Income taxes payable......................... 9,214,000 1,675,000 Current portion of deferred income taxes..... 6,544,000 8,582,000 Deferred income.............................. 7,927,000 9,443,000 ------------ ------------ Total current liabilities.................. 109,183,000 107,232,000 Film rights payable............................ 50,643,000 34,794,000 Long-term debt................................. 171,251,000 155,739,000 Accrued interest--related party................ 273,000 246,000 Convertible Notes--related party............... 23,000,000 23,000,000 Other liabilities, including participations and residuals..................................... 11,079,000 10,943,000 Deferred income taxes.......................... -- 12,326,000 Commitments and contingencies (Note E) Minority interests............................. 2,062,000 1,254,000 Stockholders' equity Class A Common Stock, $.01 par value, convertible, 10,000,000 shares authorized, 5,000,000 shares issued and outstanding..... 143,000 143,000 Class B Common Stock, $.01 par value, 100,000,000 shares authorized, 32,786,538 and 32,781,545 shares issued and outstanding................................. 101,456,000 101,368,000 Class C Common Stock, $.01 par value, convertible, 20,000,000 shares authorized, 7,088,732 shares issued and outstanding..... 50,717,000 50,717,000 Unearned compensation--Stock Plan............ (562,000) (288,000) Unrealized gain on marketable securities..... 351,000 17,376,000 Retained earnings............................ 49,087,000 56,532,000 ------------ ------------ Total stockholders' equity................. 201,192,000 225,848,000 ------------ ------------ $568,683,000 $571,382,000 ============ ============
See accompanying notes to consolidated financial statements. F-57 INTERNATIONAL FAMILY ENTERTAINMENT, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
SIX MONTHS ENDED JUNE 30, -------------------------- 1996 1997 ------------ ------------ Operating revenues................................ $149,965,000 $196,397,000 ------------ ------------ Operating expenses Production and programming...................... 73,097,000 113,139,000 Selling and marketing........................... 31,589,000 33,805,000 New business development........................ 1,091,000 1,466,000 General and administrative...................... 14,806,000 15,737,000 Amortization of goodwill........................ 1,214,000 1,140,000 ------------ ------------ Total operating expenses...................... 121,797,000 165,287,000 ------------ ------------ Operating income.............................. 28,168,000 31,110,000 ------------ ------------ Other income (expense) Investment income............................... 2,246,000 874,000 Interest expense--related parties............... (934,000) (660,000) Interest expense--other......................... (5,599,000) (5,767,000) Minority interests in losses.................... 1,701,000 808,000 Gain on disposition of assets--related party.... 13,685,000 -- Share of losses of affiliates................... (192,000) (1,582,000) Other expense, net.............................. (5,059,000) (11,409,000) ------------ ------------ Total other income (expense).................. 5,848,000 (17,736,000) ------------ ------------ Income before income taxes.................... 34,016,000 13,374,000 Provision for income taxes........................ (14,853,000) (5,929,000) ------------ ------------ Net income.................................... $ 19,163,000 $ 7,445,000 ============ ============ Primary and fully diluted earnings per common share............................................ $ 0.41 $ 0.16 ============ ============ Primary and fully diluted average common and com- mon equivalent shares............................ 47,990,954 48,457,984 ============ ============
See accompanying notes to consolidated financial statements. F-58 INTERNATIONAL FAMILY ENTERTAINMENT, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
SIX MONTHS ENDED JUNE 30, -------------------------- 1996 1997 ------------ ------------ Cash flows from operating activities Net income....................................... $ 19,163,000 $ 7,445,000 ------------ ------------ Adjustments to reconcile net income to net cash provided by operating activities Amortization of film rights.................... 55,526,000 99,420,000 Depreciation and amortization of property and equipment, goodwill, and other assets......... 5,629,000 6,110,000 Allowances against investments................. 4,750,000 9,700,000 Share of losses of affiliates.................. 192,000 1,582,000 Minority interests in losses................... (1,701,000) (808,000) Gain on sale of marketable securities.......... (1,630,000) (292,000) Gain on disposition of assets--related party... (13,685,000) -- Compensation--Stock Plan....................... 345,000 260,000 Deferred income tax expense.................... 6,134,000 2,964,000 Changes in assets and liabilities, net of ef- fect of 1996 disposition............................ (10,868,000) (8,764,000) ------------ ------------ Total adjustments............................ 44,692,000 110,172,000 ------------ ------------ Net cash provided by operating activities....... 63,855,000 117,617,000 ------------ ------------ Cash flows from investing activities Acquisitions of original programming............. (41,051,000) (64,301,000) Other investments, including advances............ (12,102,000) (11,110,000) Sales of marketable securities................... 4,865,000 3,584,000 Additions to property and equipment.............. (2,846,000) (3,266,000) ------------ ------------ Net cash used in investing activities........... (51,134,000) (75,093,000) ------------ ------------ Cash flows from financing activities Payments on film rights.......................... (25,709,000) (28,565,000) Proceeds from debt issuances..................... 10,650,000 17,000,000 Principal payments on debt....................... (22,088,000) (31,607,000) Cash provided by minority partners............... 3,000,000 -- Repurchases of Common Stock...................... (2,815,000) (74,000) ------------ ------------ Net cash used in financing activities........... (36,962,000) (43,246,000) ------------ ------------ Effect of foreign currency rate changes............ (253,000) -- ------------ ------------ Decrease in cash and cash equivalents.............. (24,494,000) (722,000) Cash and cash equivalents at beginning of period... 32,865,000 4,997,000 ------------ ------------ Cash and cash equivalents at end of period......... $ 8,371,000 $ 4,275,000 ============ ============
See accompanying notes to consolidated financial statements. F-59 INTERNATIONAL FAMILY ENTERTAINMENT, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 1997 (UNAUDITED) NOTE A--PRESENTATION OF INTERIM FINANCIAL STATEMENTS In management's opinion, the accompanying unaudited consolidated financial statements of International Family Entertainment, Inc. (together with its consolidated subsidiaries "IFE" or the "Company") reflect all adjustments, consisting of normal recurring accruals, necessary for a fair presentation of the consolidated results of operations for the interim periods presented. The consolidated results of operations for such interim periods are not necessarily indicative of the results that may be expected for future interim periods or for the year ended December 31, 1997. These interim consolidated financial statements and the notes thereto should be read in conjunction with the audited consolidated financial statements and the notes thereto for the year ended December 31, 1996. Certain amounts have been reclassified for comparability with the 1997 financial statement presentation. Management of the Company has made a number of estimates and assumptions relating to the reporting of assets and liabilities and the disclosure of contingent assets and liabilities to prepare these interim consolidated financial statements in conformity with generally accepted accounting principles. Actual results could differ from those estimates. As discussed in Note G, the Company has entered into the Merger Agreement with FKWW. The effects of the Merger, when consummated, on management's estimates and assumptions relating to the reporting of assets and liabilities and the disclosure of contingent assets and liabilities cannot be estimated with any degree of certainty at this time, although such effects could be substantial. NOTE B--EARNINGS PER SHARE The 6% Convertible Secured Notes due 2004 (the "Convertible Notes") are considered to be common stock equivalents and, accordingly, the computations of primary and fully diluted earnings per share assume conversion of the Convertible Notes if the effect of such conversion is dilutive. Stock options are also included in the computations of primary and fully diluted earnings per share if their effect is dilutive. For the six months ended June 30, 1996 and 1997, primary and fully diluted earnings per common share were computed by increasing net income by the interest on the Convertible Notes, net of related tax effect, and dividing the result by the average number of common and common equivalent shares outstanding during such periods. NOTE C--MINORITY INTERESTS THE FAMILY CHANNEL (UK) Prior to April 22, 1996, minority interests were primarily attributable to a minority partner's 39% interest in The Family Channel (UK) which was operated as a joint venture. IFE and Flextech plc, the holder of the minority 39% interest, funded the operations of The Family Channel (UK) through capital investments and loans. On April 22, 1996, the Company consummated the sale of its 61% interest in The Family Channel (UK) to Flextech, as described in Note F. The minority partner's share of the net loss resulting from the operations of The Family Channel (UK), through the date of sale, amounted to $1,419,000 for the six month period ended June 30, 1996. F-60 INTERNATIONAL FAMILY ENTERTAINMENT, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) FIT TV On April 30, 1996, the Company, an affiliate of Liberty Media Corporation ("Liberty Media"), and an affiliate of Reebok International Limited ("Reebok") entered into a definitive partnership agreement forming a partnership (the "FiT TV Partnership"), effective January 1, 1996, to own and operate the FiT TV cable network. FiT TV had previously been owned and operated by Cable Health TV, Inc. ("CHTV"), a 90%-owned subsidiary of IFE. Prior to August 1, 1997, another affiliate of Liberty Media was the holder of the Convertible Notes and all of the Company's outstanding Class C Common Stock. Liberty Media is an affiliate of Tele-Communications, Inc. ("TCI"), one of the largest cable television system operators in the United States and, as such, a major provider of carriage for FiT TV. The minority partners' combined 20% share of the net loss resulting from the operations of the FiT TV Partnership, since its formation on April 30, 1996, is reflected in the accompanying Consolidated Statements of Operations. The minority partners' combined 20% share of the net loss of FiT TV amounted to $280,000 and $808,000 for the six month periods ended June 30, 1996 and 1997, respectively. NOTE D--SUPPLEMENTAL CASH FLOW INFORMATION Total interest costs paid were approximately $4,666,000 and $6,600,000 during the six months ended June 30, 1996 and 1997, respectively. Income taxes paid during the six months ended June 30, 1996 and 1997 were approximately $2,915,000 and $11,107,000, respectively. Non-cash investing and financing activities included the acquisition of film rights under license agreements, which aggregated approximately $26,937,000, and $14,994,000 for the six months ended June 30, 1996 and 1997, respectively. As described in Note F, on April 22, 1996, the Company consummated the sale of its television production studio in Maidstone, England and its 61% interest in The Family Channel (UK) to a related party. This sale was primarily a non- cash transaction in which the Company received equity securities. Cash received in the transaction amounting to approximately $4,600,000 was offset by the cash balances of the businesses sold (which were transferred to the buyer) and cash outlays for expenses of the sale. NOTE E--COMMITMENTS AND CONTINGENCIES The Company has commitments under program contracts for film rights related to the production, exhibition, or distribution of programming, which was not available as of June 30, 1997. The commitments under these program contracts as well as commitments under program development agreements and employment agreements totaled approximately $209,000,000 as of June 30, 1997. The unpaid balance under program contracts for film rights (as well as the aggregate future estimated payments of accrued participations and residuals) related to the production, exhibition, or distribution of programming that was available as of June 30, 1997 is reflected as a liability in the accompanying consolidated financial statements. The Company has guaranteed a $12,000,000 bank credit facility for a certain sports marketing enterprise in which the Company holds convertible notes. These notes will be convertible, beginning in 1998, at the option of the Company, into a majority interest in such enterprise (which purchased the Ice Capades from the Company in December 1995). The Company has a valuation allowance in connection with its investment in the aforementioned convertible notes. Increases in this valuation allowance, which amounted to $2,000,000 and $9,700,000 for the six month periods ended June 30, 1996 and 1997, respectively, are reflected in the determination of other expense in the accompanying Consolidated Statements of Operations. F-61 INTERNATIONAL FAMILY ENTERTAINMENT, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) The Company leases office facilities and certain other property and equipment under non-cancelable operating leases. In addition, the Company has contingent liabilities related to legal proceedings and other matters arising from the normal course of operations. Management does not expect that amounts, if any, which may be required to satisfy such contingencies will be material in relation to the accompanying consolidated financial statements. NOTE F--GAIN ON DISPOSITION OF ASSETS--RELATED PARTY On April 22, 1996, the Company consummated the sale of its television production studio in Maidstone, England and its 61% interest in The Family Channel (UK) to Flextech pursuant to agreements dated as of March 20, 1996. Flextech previously owned a 39% interest in The Family Channel (UK). Flextech's majority owner is Tele-Communications International, Inc., a majority-owned subsidiary of TCI. Prior to August 1, 1997, another affiliate of TCI was the holder of the Convertible Notes and all of the Company's outstanding Class C Common Stock. As consideration for this transaction, the Company received pound sterling 3,000,000 (approximately $4,600,000) in cash and 5,792,008 shares of Flextech's convertible, redeemable, non-voting common stock. This common stock was convertible, under certain circumstances, into Flextech's voting ordinary shares which are listed on the London Stock Exchange. The underlying market value of the voting ordinary shares as of the date of the agreement was $46,100,000. The shares were recorded, for financial statement purposes, at approximately pound sterling 23,000,000 ($35,458,000 based on the exchange rate on the date of closing), which amount reflects a discount determined by an independent valuation. In April 1997, the aforementioned 5,792,008 shares of Flextech's convertible, redeemable, non-voting common stock were converted on a share- for-share basis into Flextech's voting ordinary common stock, which is listed on the London Stock Exchange. As a result of this conversion, the Company's investment in Flextech common stock is classified as "available-for-sale" securities and, accordingly, the carrying value of such investment has been adjusted to fair value (although the unrealized gain is excluded from the determination of net income). The unrealized gain is reported, net of related tax effect, as a separate component of stockholders' equity. NOTE G--PROPOSED MERGER On June 11, 1997, the Company entered into an Agreement and Plan of Merger (the "Merger Agreement") with Fox Kids Worldwide, Inc., a Delaware corporation ("FKWW"), and Fox Kids Merger Corporation, a Delaware corporation and a wholly-owned subsidiary of FKWW ("FKW Sub"), providing for the merger (the "Merger") of FKW Sub into the Company, with the Company as the surviving corporation, pursuant to which each share of Common Stock of the Company issued and outstanding immediately prior to the effective time of the Merger (other than shares owned by FKWW, FKW Sub or the Company, or any of their respective subsidiaries, or by stockholders who have validly perfected their appraisal rights under the Delaware General Corporation Law) will be converted into the right to receive a cash payment equal to $35 per share (the "Merger Consideration"), without interest. Stockholders of the Company who collectively held a majority of the outstanding voting power of the Company's Common Stock approved the Merger by written consent delivered to the Company on June 11, 1997 following the execution of the Merger Agreement. F-62 INTERNATIONAL FAMILY ENTERTAINMENT, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) Concurrently with the execution of the Merger Agreement, (i) certain stockholders of the Company entered into stock purchase agreements (collectively, the "Stock Purchase Agreements") with FKWW providing for the sale to FKWW of an aggregate of 15,587,427 shares of Class B Common Stock, including 5,000,000 shares of Class B Common Stock issuable upon conversion of all of the Company's outstanding Class A Common Stock and 1,250,000 shares of Class B Common Stock issuable upon the exercise of certain stock options, for $35 per share in cash; and (ii) Liberty IFE, Inc. ("LIFE"), a Colorado corporation and a wholly owned subsidiary of Liberty Media, which at the time held 7,088,732 shares of Class C Common Stock and the Convertible Notes, convertible into 2,587,500 shares of Class C Common Stock, entered into a Contribution and Exchange Agreement (the "Contribution Agreement") with FKWW pursuant to which LIFE agreed to contribute such shares of Class C Common Stock and the Convertible Notes to FKWW in exchange for shares of a new series of preferred stock of FKWW. This series of preferred stock has a liquidation preference of $35 per share or share equivalent of Class C Common Stock, plus $6.33 million designed to compensate LIFE for foregone interest on the Convertible Notes and for certain tax consequences. NOTE H--SUBSEQUENT EVENT On August 1, 1997, the Stock Purchase Agreements and the Contribution Agreement described in Note G were consummated. The Merger Agreement provides that, upon the consummation of the Stock Purchase Agreements, FKWW shall be entitled to designate, at its option upon notice to the Company, up to a majority of the Company's Board of Directors. In this event, the Company will either increase the size of the Board of Directors and/or obtain the resignation of such number of its current directors as is necessary to enable FKWW's designees to be elected. The Merger will be consummated upon the expiration of twenty days from the date a definitive information statement pursuant to Section 14(c) of the Securities Exchange Act of 1934, as amended, is first sent or given to the Company's stockholders. F-63 INDEPENDENT AUDITORS' REPORT The Board of Directors and Stockholders International Family Entertainment, Inc.: We have audited the accompanying consolidated balance sheets of International Family Entertainment, Inc. and subsidiaries (the "Company") as of December 31, 1995 and 1996, and the related consolidated statements of operations, cash flows and stockholders' equity for each of the years in the three-year period ended December 31, 1996. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of International Family Entertainment, Inc. and subsidiaries as of December 31, 1995 and 1996, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 1996, in conformity with generally accepted accounting principles. KPMG Peat Marwick LLP Norfolk, Virginia March 17, 1997 F-64 INTERNATIONAL FAMILY ENTERTAINMENT, INC. CONSOLIDATED BALANCE SHEETS
DECEMBER 31, -------------------------- 1995 1996 ------------ ------------ ASSETS Current assets Cash and cash equivalents........................ $ 32,865,000 $ 4,997,000 Investment in marketable securities.............. 8,290,000 9,053,000 Accounts receivable, net of allowances of $5,780,000 and $4,662,000....................... 95,699,000 121,359,000 Film rights, current portion..................... 56,355,000 97,441,000 Prepaid expenses and other....................... 11,511,000 4,401,000 ------------ ------------ Total current assets........................... 204,720,000 237,251,000 Property and equipment, net........................ 73,028,000 62,877,000 Film rights........................................ 105,094,000 144,680,000 Long-term accounts receivable, net of allowances of $520,000 and $126,000............................. 24,754,000 17,530,000 Investment in equity securities--related party..... -- 35,458,000 Other investments, net of deferred gain of $2,616,000........................................ 16,575,000 14,889,000 Goodwill, net of accumulated amortization of $6,552,000 and $8,830,000......................... 54,795,000 48,517,000 Deferred tax benefit............................... -- 1,076,000 Other assets....................................... 2,461,000 6,405,000 ------------ ------------ $481,427,000 $568,683,000 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities Accounts payable................................. $ 14,598,000 $ 12,874,000 Accrued liabilities.............................. 13,121,000 11,756,000 Accrued participations and residuals............. 11,615,000 15,613,000 Current portion of film rights payable........... 38,161,000 44,050,000 Current maturities of debt....................... 181,000 1,205,000 Income taxes payable............................. -- 9,214,000 Current portion of deferred income taxes......... 611,000 6,544,000 Deferred income.................................. 5,891,000 7,927,000 ------------ ------------ Total current liabilities...................... 84,178,000 109,183,000 Film rights payable................................ 32,714,000 50,643,000 Long-term debt..................................... 153,752,000 171,251,000 Accrued interest--related party.................... 327,000 273,000 Convertible Notes--related party................... 23,000,000 23,000,000 Other liabilities, including participations and residuals......................................... 10,347,000 11,079,000 Deferred income taxes.............................. 2,676,000 -- Commitments and contingencies (Note N) Minority interests................................. 3,130,000 2,062,000 Stockholders' equity Class A Common Stock, $.01 par value, convertible, 10,000,000 shares authorized, 5,000,000 shares issued and outstanding......... 143,000 143,000 Class B Common Stock, $.01 par value, 100,000,000 shares authorized, 33,039,831 and 32,786,538 shares issued and outstanding................... 104,886,000 101,456,000 Class C Common Stock, $.01 par value, convertible, 20,000,000 shares authorized, 7,088,732 shares issued and outstanding......... 50,717,000 50,717,000 Unearned compensation--Stock Plan................ (1,697,000) (562,000) Cumulative foreign currency translation adjust- ment............................................ 665,000 -- Unrealized gain (loss) on marketable securities.. (373,000) 351,000 Retained earnings................................ 16,962,000 49,087,000 ------------ ------------ Total stockholders' equity..................... 171,303,000 201,192,000 ------------ ------------ $481,427,000 $568,683,000 ============ ============
See accompanying notes to consolidated financial statements F-65 INTERNATIONAL FAMILY ENTERTAINMENT, INC. CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, ---------------------------------------- 1994 1995 1996 ------------ ------------ ------------ Operating revenues.................. $242,050,000 $294,858,000 $332,810,000 ------------ ------------ ------------ Operating expenses Production and programming........ 137,294,000 155,685,000 178,762,000 Selling and marketing............. 49,819,000 61,122,000 64,544,000 New business development.......... 4,991,000 9,908,000 2,317,000 General and administrative........ 21,967,000 27,088,000 28,745,000 Amortization of goodwill.......... 2,532,000 2,657,000 2,278,000 ------------ ------------ ------------ Total operating expenses........ 216,603,000 256,460,000 276,646,000 ------------ ------------ ------------ Operating income................ 25,447,000 38,398,000 56,164,000 ------------ ------------ ------------ Other income (expense) Investment income (loss).......... (2,522,000) 1,883,000 2,843,000 Interest expense--related par- ties............................. (1,754,000) (2,134,000) (1,606,000) Interest expense--other........... (9,280,000) (10,855,000) (10,945,000) Minority interests in losses...... 5,277,000 4,916,000 2,359,000 Gain on disposition of assets--re- lated party...................... -- -- 13,685,000 Other income (expense), net (Note B)............................... 7,789,000 522,000 (5,640,000) ------------ ------------ ------------ Total other income (expense).... (490,000) (5,668,000) 696,000 ------------ ------------ ------------ Income before income taxes...... 24,957,000 32,730,000 56,860,000 Provision for income taxes.......... (10,165,000) (14,066,000) (24,735,000) ------------ ------------ ------------ Net income...................... 14,792,000 18,664,000 32,125,000 Dividend requirement on Preferred Stock.............................. (2,200,000) -- -- Distribution--exchange of Preferred Stock.............................. -- (12,163,000) -- ------------ ------------ ------------ Net income available for Common Stock.......................... $ 12,592,000 $ 6,501,000 $ 32,125,000 ============ ============ ============ Primary and fully diluted earnings per common share................... $ 0.30 $ 0.16 $ 0.69 ============ ============ ============
See accompanying notes to consolidated financial statements F-66 INTERNATIONAL FAMILY ENTERTAINMENT, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, ------------------------------------------ 1994 1995 1996 ------------ ------------- ------------- Cash flows from operating activi- ties Net income........................ $ 14,792,000 $ 18,664,000 $ 32,125,000 ------------ ------------- ------------- Adjustments to reconcile net income to net cash provided by operating activities Amortization of film rights..... 103,231,000 120,277,000 145,047,000 Depreciation and amortization of property and equipment, goodwill, and other assets..... 9,611,000 10,840,000 11,270,000 Write-downs of marketable secu- rities......................... 3,706,000 -- -- Allowances against investments.. -- -- 5,250,000 Share of losses of affiliates, net............................ -- 1,345,000 514,000 Minority interests in losses.... (5,277,000) (4,916,000) (2,359,000) Gain on marketable securities... -- -- (1,924,000) Gain on disposition of assets-- related party.................. -- -- (13,685,000) Compensation--Stock Plan........ 1,127,000 1,351,000 686,000 Deferred income tax expense..... 1,206,000 11,654,000 5,477,000 Changes in assets and liabilities, net of effect of acquisitions and dispositions Accounts receivable, net of allowances................... 1,093,000 (29,048,000) (23,257,000) Marketable securities, prepaids, and other.......... 9,020,000 (5,837,000) (14,264,000) Accounts payable and accrued liabilities.................. (15,211,000) (1,304,000) 1,440,000 Income taxes payable.......... 6,202,000 (10,428,000) 8,702,000 Deferred income............... 3,451,000 (6,278,000) 1,537,000 ------------ ------------- ------------- Total adjustments............... 118,159,000 87,656,000 124,434,000 ------------ ------------- ------------- Net cash provided by operating activities................... 132,951,000 106,320,000 156,559,000 ------------ ------------- ------------- Cash flows from investing activi- ties Acquisitions of original pro- gramming....................... (82,806,000) (57,184,000) (133,527,000) Acquisitions of original pro- gramming--related parties...... (457,000) (2,747,000) (2,197,000) Cash paid for acquisition....... -- (3,060,000) -- Other investments, including ad- vances......................... -- (6,102,000) (21,506,000) Repayment of advances........... -- -- 17,494,000 Purchases of marketable securi- ties........................... (12,217,000) (858,000) -- Sales of marketable securities.. 3,689,000 1,089,000 4,954,000 Additions to property and equip- ment........................... (9,443,000) (10,182,000) (9,775,000) Proceeds from sales of property and equipment.................. 2,504,000 -- -- ------------ ------------- ------------- Net cash used in investing ac- tivities..................... (98,730,000) (79,044,000) (144,557,000) ------------ ------------- ------------- Cash flows from financing activi- ties Payments on film rights......... (42,428,000) (46,167,000) (58,142,000) Proceeds from debt issuances.... 5,000,000 313,250,000 59,150,000 Principal payments on debt...... (31,201,000) (285,417,000) (40,703,000) Cash provided by minority part- ners........................... 2,774,000 4,523,000 3,000,000 Payment of Preferred Stock divi- dends.......................... (2,200,000) (1,109,000) -- Repurchases of Common Stock..... (2,661,000) (4,357,000) (2,981,000) Repurchases of Common Stock--re- lated parties.................. -- (13,819,000) -- ------------ ------------- ------------- Net cash used in financing ac- tivities..................... (70,716,000) (33,096,000) (39,676,000) ------------ ------------- ------------- Effect of foreign currency rate changes.......................... 1,094,000 (31,000) (194,000) ------------ ------------- ------------- Decrease in cash and cash equiva- lents............................ (35,401,000) (5,851,000) (27,868,000) Cash and cash equivalents at be- ginning of year.................. 74,117,000 38,716,000 32,865,000 ------------ ------------- ------------- Cash and cash equivalents at end of year.......................... $ 38,716,000 $ 32,865,000 $ 4,997,000 ============ ============= =============
See accompanying notes to consolidated financial statements F-67 INTERNATIONAL FAMILY ENTERTAINMENT, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY FOR THE YEARS ENDED DECEMBER 31, 1994, 1995, AND 1996
10% CUMULATIVE UNREALIZED CONVERTIBLE FOREIGN GAIN CUMULATIVE CLASS A CLASS B CLASS C UNEARNED CURRENCY (LOSS) ON RETAINED PREFERRED COMMON COMMON COMMON COMPENSATION TRANSLATION MARKETABLE EARNINGS STOCK STOCK STOCK STOCK STOCK PLAN ADJUSTMENT SECURITIES (DEFICIT) ------------ -------- ------------ ----------- ------------ ----------- ---------- ------------ BALANCES AT JANUARY 1, 1994........... $ 21,670,000 $150,000 $146,198,000 $ -- $(1,701,000) $ (11,000) $ -- $(13,089,000) Conversion of Class A Common Stock, 500,000 shares......... -- (17,000) 17,000 -- -- -- -- -- Issuance of Class B Common Stock under the Stock Plan, 140,482 shares......... -- -- 2,258,000 -- (2,257,000) -- -- -- Forfeiture of Class B Common Stock under the Stock Plan, 14,000 shares.. -- -- (148,000) -- 147,000 -- -- -- Compensation-- Stock Plan..... -- -- -- -- 1,127,000 -- -- -- Repurchase and retirement of Class B Common Stock, 176,033 shares......... -- -- (2,661,000) -- -- -- -- -- Increase in deferred tax benefit related to initial basis differences (Note K)....... -- -- 6,000,000 -- -- -- -- -- Foreign currency translation adjustment..... -- -- -- -- -- 989,000 -- -- Unrealized loss on marketable securities..... -- -- -- -- -- -- (156,000) -- Net income...... -- -- -- -- -- -- -- 14,792,000 Preferred Stock dividends paid........... -- -- -- -- -- -- -- (2,200,000) ------------ -------- ------------ ----------- ----------- --------- --------- ------------ BALANCES AT DECEMBER 31, 1994........... 21,670,000 133,000 151,664,000 -- (2,684,000) 978,000 (156,000) (497,000) Exchange of Preferred Stock for Class B Common Stock, 4,000,000 shares......... (21,670,000) -- 21,670,000 -- -- -- -- -- Exchange of Class B Common Stock for Class C Common Stock, 5,670,986 shares (Note H)............. -- -- (50,703,000) 50,703,000 -- -- -- -- Issuance of Class B Common Stock under the Stock Plan, 37,637 shares......... -- -- 578,000 -- (578,000) -- -- -- Forfeiture of Class B Common Stock under the Stock Plan, 15,280 shares......... -- -- (214,000) -- 214,000 -- -- -- Compensation-- Stock Plan..... -- -- -- -- 1,351,000 -- -- -- Repurchase and retirement of Class B Common Stock, 1,357,456 shares......... -- -- (18,176,000) -- -- -- -- -- Five-for-four stock split, including $5,000 paid for fractional shares (Note I)............. -- 10,000 67,000 14,000 -- -- -- (96,000) Foreign currency translation adjustments.... -- -- -- -- -- (313,000) -- -- Unrealized loss on marketable securities..... -- -- -- -- -- -- (217,000) -- Net income...... -- -- -- -- -- -- -- 18,664,000 Preferred Stock dividends paid........... -- -- -- -- -- -- -- (1,109,000) ------------ -------- ------------ ----------- ----------- --------- --------- ------------ BALANCES AT DECEMBER 31, 1995........... -- 143,000 104,886,000 50,717,000 (1,697,000) 665,000 (373,000) 16,962,000 Issuance of Class B Common Stock under the Stock Plan, 812 shares......... -- -- 11,000 -- (11,000) -- -- -- Forfeiture of Class B Common Stock under the Stock Plan, 31,936 shares......... -- -- (460,000) -- 460,000 -- -- -- Exercise of options to purchase Class B Common Stock under the Stock Plan, 19,333 shares.. -- -- 266,000 -- -- -- -- -- Compensation-- Stock Plan..... -- -- -- -- 686,000 -- -- -- Repurchase and retirement of Class B Common Stock, 241,502 shares......... -- -- (3,247,000) -- -- -- -- -- Foreign currency translation adjustment..... -- -- -- -- -- (665,000) -- -- Unrealized gain on marketable securities..... -- -- -- -- -- -- 724,000 -- Net income...... -- -- -- -- -- -- -- 32,125,000 ------------ -------- ------------ ----------- ----------- --------- --------- ------------ BALANCES AT DECEMBER 31, 1996........... $ -- $143,000 $101,456,000 $50,717,000 $ (562,000) $ -- $ 351,000 $ 49,087,000 ============ ======== ============ =========== =========== ========= ========= ============ TOTAL ------------- BALANCES AT JANUARY 1, 1994........... $153,217,000 Conversion of Class A Common Stock, 500,000 shares......... -- Issuance of Class B Common Stock under the Stock Plan, 140,482 shares......... 1,000 Forfeiture of Class B Common Stock under the Stock Plan, 14,000 shares.. (1,000) Compensation-- Stock Plan..... 1,127,000 Repurchase and retirement of Class B Common Stock, 176,033 shares......... (2,661,000) Increase in deferred tax benefit related to initial basis differences (Note K)....... 6,000,000 Foreign currency translation adjustment..... 989,000 Unrealized loss on marketable securities..... (156,000) Net income...... 14,792,000 Preferred Stock dividends paid........... (2,200,000) ------------- BALANCES AT DECEMBER 31, 1994........... 171,108,000 Exchange of Preferred Stock for Class B Common Stock, 4,000,000 shares......... -- Exchange of Class B Common Stock for Class C Common Stock, 5,670,986 shares (Note H)............. -- Issuance of Class B Common Stock under the Stock Plan, 37,637 shares......... -- Forfeiture of Class B Common Stock under the Stock Plan, 15,280 shares......... -- Compensation-- Stock Plan..... 1,351,000 Repurchase and retirement of Class B Common Stock, 1,357,456 shares......... (18,176,000) Five-for-four stock split, including $5,000 paid for fractional shares (Note I)............. (5,000) Foreign currency translation adjustments.... (313,000) Unrealized loss on marketable securities..... (217,000) Net income...... 18,664,000 Preferred Stock dividends paid........... (1,109,000) ------------- BALANCES AT DECEMBER 31, 1995........... 171,303,000 Issuance of Class B Common Stock under the Stock Plan, 812 shares......... -- Forfeiture of Class B Common Stock under the Stock Plan, 31,936 shares......... -- Exercise of options to purchase Class B Common Stock under the Stock Plan, 19,333 shares.. 266,000 Compensation-- Stock Plan..... 686,000 Repurchase and retirement of Class B Common Stock, 241,502 shares......... (3,247,000) Foreign currency translation adjustment..... (665,000) Unrealized gain on marketable securities..... 724,000 Net income...... 32,125,000 ------------- BALANCES AT DECEMBER 31, 1996........... $201,192,000 =============
See accompanying notes to consolidated financial statements F-68 INTERNATIONAL FAMILY ENTERTAINMENT, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Operations International Family Entertainment, Inc. (together with its consolidated subsidiaries, "IFE" or the "Company") produces, exhibits, and distributes entertainment and informational programming as well as related products targeted at families worldwide. IFE's principal business is The Family Channel, an advertiser-supported cable television network that provides family-oriented entertainment and informational programming in the United States. In addition, IFE owns MTM Entertainment, Inc. ("MTM"), a producer and worldwide distributor of television series and made-for-television movies and the owner of a significant library of television programming; FiT TV, an advertiser-supported health and fitness cable network which operates principally in the United States; and Calvin Gilmore Productions, Inc., a producer of live musical variety shows. IFE also operated The Family Channel (UK), an advertiser-supported network in the United Kingdom, through its disposition on April 22, 1996, and The Family Channel De Las Americas, which provided Spanish-language, family-oriented entertainment programming, as well as fitness programming, to Mexico, Central America, and portions of South America, through the discontinuance of its operations in November 1996. Additionally, in 1995, IFE operated the Ice Capades, a touring ice show. Basis of Presentation The accompanying consolidated financial statements for the years ended December 31, 1994, 1995, and 1996 include the accounts of the Company and all majority-owned subsidiaries (including joint ventures). All significant intercompany accounts and transactions have been eliminated in consolidation. Cash Equivalents All highly-liquid debt instruments purchased with original maturities of three months or less are classified as cash equivalents. Marketable Securities Marketable securities consist of investments in U.S. Government bonds and notes and other marketable debt or equity securities. Debt and equity securities that are bought and held principally for the purpose of selling them in the near term are classified as "trading" securities and reported at fair value, with unrealized gains and losses included in the determination of net income. Gains and losses on transactions involving futures contracts or other derivative securities are also included in the determination of net income. Debt and equity securities not classified as trading securities are classified as "available-for-sale" securities and reported at fair value, with unrealized gains and losses excluded from the determination of net income (unless an other-than-temporary impairment shall have occurred) and reported, net of related tax effect, as a separate component of stockholders' equity. The cost of securities sold is determined using the specific identification method. Property and Equipment Property and equipment is stated at cost. Buildings and equipment under capital leases are stated at the present value of minimum lease payments. Depreciation is computed on a straight-line basis over the estimated useful lives of the assets: buildings and building improvements--20 to 40 years; satellite transponders--12 years; broadcasting and production equipment--3 to 5 years; and furniture and other equipment--3 to 10 years. Leasehold improvements are amortized on a straight-line basis over the shorter of the lease terms or estimated useful lives of the assets. F-69 INTERNATIONAL FAMILY ENTERTAINMENT, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) Film Rights Film rights include exhibition and exploitation rights acquired under license agreements for the Company's own use on its cable networks and for relicensing to others. Also included in film rights are costs of programming, including films-in-progress, produced for exhibition by the Company on its cable networks or produced for others. These costs, including allocated overhead, are capitalized as incurred. Rights acquired under license agreements, along with the related obligations, are recorded at the face amount of the contract at the time the programming is made available. Film rights, other than films-in-progress (which are stated at cost), are stated at the lower of cost, less related amortization, or net realizable value. Exhibition rights are amortized on a straight-line basis over the estimated number of airings. Production and exploitation costs related to programs produced for others are amortized based on the percentage that current year revenues bear to estimated future revenues on a program-by- program basis. Estimates of future airings and revenues are periodically reviewed by management and revised when warranted by changing conditions, such as changes in expected usage of a program on the Company's cable networks or changes in the distribution marketplace. The current portion of film rights is based upon the estimated portion of these assets which is expected to be amortized over the next year. Other Investments Other investments in which the Company's voting interest is less than 20% are carried at cost. Investments in affiliates in which the Company's voting interest is 20% to 50% are accounted for under the equity method. Under this method, the investment, originally recorded at cost, is adjusted to recognize the Company's share of the net earnings or losses of the affiliates as they occur. The excess of the cost of the stock of those affiliates over the Company's share of net assets at the acquisition date is amortized on a straight-line basis over the expected period to be benefited, generally 25 years. Goodwill Goodwill, which represents the excess of purchase price over the fair value of net assets acquired, is amortized on a straight-line basis over the expected period to be benefited, generally 25 years. At each balance sheet date, the Company evaluates the realizability of goodwill based upon expectations of nondiscounted future operating cash flows for each subsidiary having a material goodwill balance. The evaluation of goodwill will be impacted if estimated future operating cash flows are not achieved. Based upon its most recent analysis, the Company believes that no material impairment of goodwill existed at December 31, 1996. Foreign Currency Translation All balance sheet accounts of foreign investments were translated at the current exchange rate as of the end of the accounting period. The resulting translation adjustment was recorded as a separate component of stockholders' equity. Income statement items are translated at average currency exchange rates. Revenue Recognition Advertising revenue is recognized in the period in which the advertising commercials or programs are telecast. Subscriber fees are recognized in the period during which the network services are provided to a cable system operator or other distributor. F-70 INTERNATIONAL FAMILY ENTERTAINMENT, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) Production and distribution revenues are recognized in the period in which programming becomes available for telecast by others. Long-term receivables arising from distribution arrangements are recorded at their net present values when revenue is recognized. Amounts received in advance of recognition of revenue are recorded as deferred income. Costs of profit participations and residual payments are accrued, based upon amounts expected to be payable, at the time revenue is recognized. Income Taxes The Company utilizes the asset and liability method of accounting for income taxes. Under the asset and liability method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to be applicable to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the period that includes the enactment date. Stock Options Prior to January 1, 1996, the Company accounted for stock options in accordance with the provisions of Accounting Principles Board ("APB") Opinion No. 25. Accounting for Stock Issued to Employees, and related interpretations. As such, compensation expense would be recorded on the date of grant only if the current market price of the underlying stock exceeded the exercise price. On January 1, 1996, the Company adopted Statement of Financial Accounting Standards ("SFAS") No. 123, Accounting for Stock-Based Compensation, which permits entities to recognize as expense over the vesting period the fair value of all stock-based awards on the date of grant. Alternatively, SFAS No. 123 also allows entities to continue to apply the provisions of APB Opinion No. 25 and provide pro forma net income and pro forma earnings per share disclosures for employee stock option grants made in 1995 and future years as if the fair-value-based method defined in SFAS No. 123 had been applied. The Company has elected to continue to apply the provisions of APB Opinion No. 25 and provide the pro forma disclosure provisions of SFAS No. 123. Earnings Per Share The Convertible Notes, as described in Note F, are considered to be common stock equivalents and, accordingly, the computations of primary and fully diluted earnings per share assume conversion of the Convertible Notes if the effect of such conversion is dilutive. Stock options are also included in the computations of primary and fully diluted earnings per share if their effect is dilutive. For the years ended December 31, 1994 and 1995, primary and fully diluted earnings per common share were computed by dividing net income available for Common Stock by the average number of common shares (41,820,072 and 40,754,635, respectively) outstanding during such years. In 1995, the impact of the Exchange Agreement, as described in Note H, on earnings per common share was a reduction of $0.24 per common share. For the year ended December 31, 1996, primary and fully diluted earnings per common share were computed by increasing net income available for Common Stock by the interest on the Convertible Notes, net of the related tax effect, and dividing the result by the average number of common shares (48,022,327) outstanding during 1996. Use of Estimates Management of the Company has made a number of estimates and assumptions relating to the reporting of assets and liabilities and the disclosure of contingent assets and liabilities to prepare these financial statements in conformity with generally accepted accounting principles. Actual results could differ from those estimates. F-71 INTERNATIONAL FAMILY ENTERTAINMENT, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) Reclassifications Certain amounts have been reclassified for comparability with the 1996 financial statement presentation. NOTE B--ACQUISITIONS AND OTHER INVESTMENTS Body By Jake Enterprises In July 1995, the Company acquired a 20% interest in Body By Jake Enterprises, LLC ("BBJE"), a fitness licensing and television production company, for $4,000,000 in cash. China Entertainment Television Broadcast Limited In June 1995, the Company acquired a 33 1/3% interest in an entity which held convertible demand notes, which were convertible into an 80% equity interest in China Entertainment Television Broadcast Limited. This entity recorded a valuation allowance in 1995 of which the Company's share was approximately $1,500,000, which is reflected in the determination of other income and expense in the 1995 Consolidated Statement of Operations. In November 1996, these convertible demand notes were sold to a third party for approximately 77.5% of their face value. Ice Capades In February 1995, the Company acquired the assets of the Ice Capades for consideration, consisting principally of assumed liabilities, amounting to approximately $10,200,000. The liabilities assumed in the transaction included $6,728,000 of cash advances by IFE prior to closing. On December 31, 1995, the Company sold its interest in the Ice Capades to a certain sports marketing enterprise in exchange for 7 1/2% convertible notes, due in 2005, in the principal amount of $10,200,000 and the assumption of cash advances due to the Company amounting to $4,090,000 at December 31, 1995. These notes will be convertible, beginning in 1998, at the option of the Company, into a majority interest in the acquiring entity. Accordingly, the gain on this transaction amounting to $2,616,000 was deferred. In addition, on this same date, the Company and the acquiring entity entered into a revolving credit agreement whereby the Company agreed to advance the acquiring entity up to $12,000,000 (including the aforementioned $4,090,000 in cash advances). During 1996, this revolving credit agreement was replaced by a bank credit facility which is guaranteed by IFE. In 1996, the Company recorded a valuation allowance in connection with its investment in the aforementioned 7 1/2% convertible notes. Such valuation allowance, which amounted to $5,300,000, is reflected in the determination of other income and expense in the 1996 Consolidated Statement of Operations. TVS ENTERTAINMENT PLC During 1993, the Company acquired all of the outstanding capital stock of TVS ENTERTAINMENT PLC ("TVS"), which was the parent company of MTM at that time. Upon consummation of the acquisition of TVS, several contingencies existed and the amounts related thereto were included in the allocation of the purchase price, based upon management estimates utilizing the best available information. Such estimates are periodically reviewed by management and revised when warranted. Generally, after the first twelve months following an acquisition, changes in estimates are included in the determination of net income. Accordingly, the effects of the final resolution in 1994 and 1995 of certain pre-acquisition contingencies recorded in the acquisition of TVS were included in the determination of net income. Such effects, which amounted to $7,291,000 and $2,521,000, were included in the determination of other income and expense in the 1994 and 1995 Consolidated Statements of Operations, respectively. F-72 INTERNATIONAL FAMILY ENTERTAINMENT, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) United Family Communications In November 1996, the Company and a third party formed United Family Communications, LLC ("UFC") to operate and distribute satellite-delivered television programming services in Mexico, Central America, and South America. The Company has agreed to make an initial cash contribution of $5,200,000 and has contributed certain assets of The Family Channel De Las Americas (subject to the joint venture's assumption of related liabilities) in exchange for a 50% interest in UFC. It is the current intent of UFC to launch one or more advertiser-supported, satellite-delivered television programming services in 1997. NOTE C--MARKETABLE SECURITIES Marketable securities consist of the following:
DECEMBER 31, --------------------- 1995 1996 ---------- ---------- Available-for-sale securities, at fair value..... $6,271,000 $4,072,000 Trading securities, at fair value................ 2,019,000 4,981,000 ---------- ---------- $8,290,000 $9,053,000 ========== ==========
Available-for-sale securities, consisting primarily of equity securities, had an amortized cost of $6,904,000 and $3,477,000 at December 31, 1995 and 1996, respectively. As of December 31, 1995, the unrealized loss related to securities classified as available-for-sale amounted to $633,000 ($373,000 after related tax effect). As of December 31, 1996, the unrealized gain related to securities classified as available-for-sale amounted to $595,000 ($351,000 after related tax effect). For the years ended December 31, 1995 and 1996, proceeds from the disposition of available-for-sale securities amounted to $1,089,000 and $4,954,000, respectively, and gross realized gains and losses were $29,000 and $(119,000) in 1995 and $1,093,000 and $(22,000) in 1996. As of December 31, 1996, the unrealized gain related to trading securities (with a cost of $4,129,000) amounted to $852,000, which amount is included in the determination of investment income. For the year ended December 31, 1996, proceeds from the disposition of trading securities amounted to $952,000, and gross realized gains and losses were $164,000 and $(49,000) in 1996. The Company recognized a $3,691,000 loss in 1994 on the impairment of certain equity securities classified as available-for-sale securities. This loss for 1994 was accounted for as a realized loss in the determination of investment income. Also included in the determination of investment income for 1994 were realized losses aggregating $2,338,000 on transactions which involved futures contracts or other derivative securities. NOTE D--PROPERTY AND EQUIPMENT Property and equipment consists of the following:
DECEMBER 31, ----------------------- 1995 1996 ----------- ----------- Land and buildings............................... $21,010,000 $14,156,000 Satellite transponders........................... 36,415,000 36,415,000 Broadcasting and production equipment............ 16,857,000 12,248,000 Furniture and other equipment.................... 16,584,000 24,494,000 Leasehold and building improvements.............. 5,993,000 5,424,000 ----------- ----------- 96,859,000 92,737,000 Less accumulated depreciation and amortization... 23,831,000 29,860,000 ----------- ----------- $73,028,000 $62,877,000 =========== ===========
F-73 INTERNATIONAL FAMILY ENTERTAINMENT, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) NOTE E--LONG-TERM DEBT Long-term debt, other than the Convertible Notes described in Note F, consists of the following:
DECEMBER 31, ------------------------- 1995 1996 ------------ ------------ Revolving Credit Facility...................... $133,000,000 $150,500,000 Subsidiary Credit Agreement.................... 8,850,000 10,000,000 6% notes payable, subordinated................. 6,720,000 6,720,000 Capital lease obligations...................... 5,363,000 5,236,000 ------------ ------------ 153,933,000 172,456,000 Less current maturities........................ 181,000 1,205,000 ------------ ------------ $153,752,000 $171,251,000 ============ ============
Revolving Credit Facility The Company has a long-term bank credit facility (the "Revolving Credit Facility") with a group of banks with a maximum loan commitment thereunder of $250,000,000. The Revolving Credit Facility provides for semi-annual reductions of one-tenth of the loan commitment, beginning in December 1997, with a final expiration in June 2002. Interest on borrowings under the Revolving Credit Facility is payable quarterly at the prime rate or, at the option of the Company, at a Eurodollar-based interest rate (5 9/16% at December 31, 1996), plus a margin of 7/8% to 1 3/8%, depending on the Company's overall leverage. In addition, the Company pays a fee of 1/4% to 3/8% per annum, depending on leverage, on the average unborrowed portion of the total amount available for borrowings. The Revolving Credit Facility contains (i) a negative pledge of substantially all of the Company's assets and (ii) various restrictive covenants which, among other things, obligate the Company to maintain certain financial ratios and limit the ability of the Company to incur additional indebtedness, liens, and guarantees. Under the terms of the Revolving Credit Facility, the aggregate amount of future dividends on, and future redemptions of, the Company's common stock cannot exceed approximately $50,000,000 as of December 31, 1996. Interest Rate Exchange Agreement In August 1996, the Company entered into an interest rate exchange agreement pursuant to which it will make payments based upon a fixed rate of interest (5 7/8% per annum) on a notional amount of $25,000,000 and, in exchange, receive payments based upon a variable rate of interest using a Eurodollar-based interest rate determined on a quarterly basis. The initial term of this agreement is two years, with an additional term of one year at the option of the counterparty. Although the Company does not anticipate nonperformance by the counterparty, the Company is exposed to credit losses for the periodic settlement of amounts due under this interest rate exchange agreement in the event of such party's nonperformance. Subsidiary Credit Agreement In January 1995, a subsidiary of the Company entered into a $10,000,000 credit agreement with a certain bank (the "Subsidiary Credit Agreement"). The terms of the Subsidiary Credit Agreement are substantially the same as those of the Revolving Credit Facility. F-74 INTERNATIONAL FAMILY ENTERTAINMENT, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) Future Minimum Payments The December 31, 1996 balance of long-term debt, other than the Convertible Notes, is payable as follows:
REVOLVING SUBSIDIARY CAPITAL CREDIT CREDIT 6% NOTES LEASE YEARS ENDED DECEMBER 31 FACILITY AGREEMENT PAYABLE OBLIGATIONS TOTAL - ----------------------- ------------ ----------- ---------- ----------- ------------ 1997.................... $ -- $ 1,000,000 $ -- $ 581,000 $ 1,581,000 1998.................... -- 2,000,000 -- 450,000 2,450,000 1999.................... 25,500,000 2,000,000 1,680,000 425,000 29,605,000 2000.................... 50,000,000 2,000,000 1,680,000 435,000 54,115,000 2001.................... 50,000,000 2,000,000 1,680,000 480,000 54,160,000 Thereafter.............. 25,000,000 1,000,000 1,680,000 8,283,000 35,963,000 Less amounts representing interest on capital lease obligations............ -- -- -- (5,418,000) (5,418,000) ------------ ----------- ---------- ---------- ------------ $150,500,000 $10,000,000 $6,720,000 $5,236,000 $172,456,000 ============ =========== ========== ========== ============
NOTE F--CONVERTIBLE NOTES The Company's 6% Convertible Secured Notes due 2004 (the "Convertible Notes") were issued to a related party. The Convertible Notes provide for a security interest in the Company's rights in two satellite transponders, and contain restrictive covenants which, among other things, require the Company to maintain certain financial ratios and limit the ability of the Company to incur additional indebtedness. In addition, no dividends may be declared or paid on any shares of the Company's capital stock (other than dividends payable solely in shares of the capital stock of the Company) at any time when payments of principal, interest or other amounts are past due under the Convertible Notes or while any event of default is continuing under the Convertible Notes or would result from such dividend. The $23,000,000 in principal amount of the Convertible Notes is payable in five equal annual installments beginning December 31, 2000. The Convertible Notes are subordinated to borrowings under the Revolving Credit Facility described in Note E. Each $1,000 in principal amount of the Convertible Notes may be converted into 112 1/2 shares of Class C Common Stock. Each share of Class C Common Stock is convertible, at the option of the holder, into one share of Class B Common Stock. Accordingly, the Company has reserved 2,587,500 shares of Class C Common Stock for potential future conversion of the Convertible Notes (and, in addition, 2,587,500 shares of Class B Common Stock for potential future conversion of the resulting Class C Common Stock). NOTE G--MINORITY INTERESTS The Family Channel (UK) Prior to April 22, 1996, minority interests were primarily attributable to a minority partner's 39% interest in The Family Channel (UK) which was operated as a joint venture. IFE and Flextech plc, the holder of the minority 39% interest, funded the operations of The Family Channel (UK) through capital investments and loans. On April 22, 1996, the Company consummated the sale of its 61% interest in The Family Channel (UK) to Flextech, as described in Note P. F-75 INTERNATIONAL FAMILY ENTERTAINMENT, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) The minority partner's 39% share of the net loss resulting from the operations of The Family Channel (UK) amounted to $5,107,000 and $4,954,000 for the years ended December 31, 1994 and 1995, respectively. The minority partner's 39% share of the net loss of this joint venture, through the date of sale, amounted to $1,419,000 for 1996. FiT TV On April 30, 1996, the Company, an affiliate of Liberty Media Corporation ("Liberty Media"), and an affiliate of Reebok International Limited ("Reebok") entered into a definitive partnership agreement (the "FiT TV Partnership Agreement") forming a partnership (the "FiT TV Partnership"), effective January 1, 1996, to own and operate the FiT TV cable network. FiT TV had previously been owned and operated by Cable Health TV, Inc. ("CHTV"), a 90%- owned subsidiary of IFE. Another affiliate of Liberty Media is the holder of the Convertible Notes and all of the Company's outstanding Class C Common Stock. Liberty Media is an affiliate of Tele-Communications, Inc. ("TCI"), one of the largest cable television system operators in the United States and, as such, a major provider of carriage for FiT TV. In accordance with the terms of the FiT TV Partnership Agreement, CHTV contributed all of the assets and liabilities of FiT TV to the FiT TV Partnership in exchange for an 80% partnership interest and functions as the FiT TV Partnership's managing partner. Reebok contributed cash of $2,000,000 and other consideration agreed upon by the parties in exchange for a 10% partnership interest. Liberty Media contributed cash of $1,000,000 and other consideration agreed upon by the parties in exchange for a 10% partnership interest. In conjunction with this transaction, CHTV and Liberty Media entered into an agreement whereby Liberty Media was granted a five-year option to purchase an additional 10% partnership interest from CHTV. The exercise price for this option varies (up to a maximum of $5,000,000) depending on the number of domestic subscribers receiving FiT TV from delivery systems owned or managed by Liberty Media or an affiliate of Liberty Media (including TCI) at the time of exercise. The minority partners' combined 20% share of the net loss resulting from the operations of the FiT TV Partnership, since its formation on April 30, 1996, is reflected in the 1996 Consolidated Statement of Operations. The minority partners' combined 20% share of the net loss of FiT TV amounted to $938,000 for the year ended December 31, 1996. NOTE H--EXCHANGE OF PREFERRED STOCK On December 15, 1995, the Company and Liberty IFE, Inc., an affiliate of Liberty Media, the then holder of the 10% Convertible Cumulative Preferred Stock (the "Preferred Stock"), and holder of the Convertible Notes, entered into an exchange agreement (the "Exchange Agreement") whereby Liberty IFE (i) exchanged its holdings of all of the Preferred Stock for shares of Class B Common Stock, (ii) exchanged all of its holdings of Class B Common Stock (including the shares of Class B Common Stock received in exchange for the Preferred Stock) for an equal number of shares of non-voting Class C Common Stock, (iii) amended the terms of the Convertible Notes to provide, among other things, for conversion of such notes into shares of non-voting Class C Common Stock in lieu of shares of Class B Common Stock and for the elimination of provisions which required the Company to issue Class C Common Stock in the event of the occurrence of certain payment defaults, and (iv) amended the terms of certain other agreements, including the shareholder agreement among the Company and certain of its principal shareholders. F-76 INTERNATIONAL FAMILY ENTERTAINMENT, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) The Exchange Agreement had no impact on the determination of net income for the year ended December 31, 1995. However, net income available for Common Stock for the year ended December 31, 1995 has been reduced by a distribution of $12,163,000 (or $0.30 per common share), which amount represents the excess of (i) the fair value of the shares of Class B Common Stock which were transferred in the transaction by the Company to the former holder of the Preferred Stock over (ii) the fair value of the Class B Common Stock which was issuable pursuant to the original conversion terms. The amount of this distribution approximates the present value of the dividend payments for 1995 and future years that would have been required on the Preferred Stock. Excluding the effect of the dividend which would have been required for 1995, the impact of the Exchange Agreement on earnings per common share was a reduction of $0.24 per common share for the year ended December 31, 1995. NOTE I--CAPITAL STOCK Preferred Stock Prior to the consummation of the Exchange Agreement described in Note H, the Preferred Stock was entitled to a dividend at an annual rate of 10% of the $22,000,000 original liquidation preference, payable semiannually in January and July. The liquidation preference was increased by cumulative dividends, whether or not they were declared. At December 31, 1994, undeclared dividends totaled $1,109,000, which was the amount of the dividend declared and paid in January 1995. Common Stock The Company has two classes of voting common stock. The Class A Common Stock has ten votes per share and the Class B Common Stock has one vote per share. Each share of Class A Common Stock is convertible, at the option of the holder, into one share of Class B Common Stock. Each share of Class C Common Stock is non-voting and is convertible, at the option of the holder, into one share of Class B Common Stock. The Class A Common Stock and Class B Common Stock vote together as a single class on all matters except that (i) so long as the outstanding Class A Common Stock has more than 40% of the total outstanding voting power of all common stock entitled to vote, the holders of Class A Common Stock, voting separately as a class, are entitled to elect a majority of the Company's directors, with the remainder of the directors being elected by the holders of the Class B Common Stock, voting separately as a class, and (ii) the approval of a majority of each of the Class A Common Stock and the Class B Common Stock is required for certain extraordinary corporate actions. Stock Split On November 16, 1995, the Company's Board of Directors approved a five-for- four stock split which was effected in the form of a 25% stock dividend and payable on January 5, 1996 to the shareholders of record at the close of business on December 15, 1995. In connection with the stock split, all classes of common stock were credited and retained earnings was charged for the aggregate par value of the shares that were issued. A total of 1,000,000 shares of Class A Common Stock, 6,607,657 shares of Class B Common Stock, and 1,417,746 shares of Class C Common Stock were issued in connection with the stock split. Shareholder Agreement Pursuant to the amended shareholder agreement (the "Shareholder Agreement") among the Company and certain of its principal stockholders, each of the parties to the Shareholder Agreement will, in the event of any F-77 INTERNATIONAL FAMILY ENTERTAINMENT, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) future offering of capital stock by the Company, be entitled to purchase additional shares of such capital stock in order to maintain its percentage ownership of each class of capital stock. The Shareholder Agreement also provides that, under certain circumstances, Liberty IFE has a right of first refusal with respect to certain sales, conversions or transfers of Class A Common Stock. NOTE J--SUPPLEMENTAL CASH FLOW INFORMATION Total interest costs paid during the years ended December 31, 1994, 1995, and 1996 were $9,172,000, $12,087,000, and $12,045,000, respectively. Income taxes paid during the years ended December 31, 1994, 1995, and 1996 amounted to $2,757,000, $13,397,000, and $10,018,000, respectively. Non-cash investing and financing activities included the acquisition of film rights under license agreements which aggregated approximately $30,343,000, $37,221,000, and $73,893,000 for the years ended December 31, 1994, 1995, and 1996, respectively. As described in Note P, on April 22, 1996, the Company consummated the sale of its television production studio in Maidstone, England and its 61% interest in The Family Channel (UK) to a related party. This sale was primarily a non- cash transaction in which the Company received equity securities. Cash received in the transaction amounting to approximately $4,600,000 was offset by the cash balances of the businesses sold (which were transferred to the buyer) and cash outlays for expenses of the sale. Non-cash investing and financing activities for the year ended December 31, 1995 included approximately $7,140,000 of liabilities assumed in the acquisition of the Ice Capades. Non-cash purchases of property and equipment under capital leases amounted to $5,380,000 and $76,000 for the years ended December 31, 1995 and 1996, respectively. The exchange of Preferred Stock for Common Stock with a related party during the year ended December 31, 1995 was a non-cash transaction. Non-cash investing and financing activities also included the sale of the Ice Capades in December 1995, in exchange for $10,200,000 in notes receivable and other consideration, as described in Note B. NOTE K--INCOME TAXES In January 1990, the Company acquired the assets of The Family Channel from The Christian Broadcasting Network, Inc. ("CBN"). For income tax purposes, the Company established the basis of the assets it acquired from CBN at the respective fair market values of the assets as determined by the negotiated sales price and an independent appraisal. IFE and CBN are considered to be related parties for financial reporting purposes and, accordingly, the net assets acquired were recorded at CBN's book value at the date of acquisition. Therefore, the tax basis of the assets acquired exceeds the amount reflected in the accompanying consolidated financial statements. This initial basis difference reduces the amount of the Company's income subject to income taxes to the extent that it is amortizable for income tax purposes. The Company's income tax return for 1990, the year in which the Company acquired the assets of The Family Channel from CBN, is currently under examination by the Internal Revenue Service ("IRS"). As discussed in the preceding paragraph, this acquisition gave rise to the initial difference between the basis of the assets acquired from CBN for financial statement purposes and the basis of those assets for tax purposes. In May 1994, the Company and the IRS entered into a closing agreement (the "Closing Agreement") settling all outstanding issues regarding the method and amounts of amortization in respect of the assets acquired from CBN. F-78 INTERNATIONAL FAMILY ENTERTAINMENT, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) These amounts had previously been estimated by the Company. As a result of the Closing Agreement, the amount of deferred tax benefit recorded by the Company was increased in 1994 by $6,000,000 with a corresponding increase in stockholders' equity. The Company's reported earnings were not affected by the Closing Agreement. Income before income taxes, as shown in the Consolidated Statements of Operations, is summarized as follows:
YEARS ENDED DECEMBER 31, ------------------------------------- 1994 1995 1996 ----------- ----------- ----------- Domestic........................... $20,120,000 $36,737,000 $63,882,000 Foreign............................ 4,837,000 (4,007,000) (7,022,000) ----------- ----------- ----------- $24,957,000 $32,730,000 $56,860,000 =========== =========== =========== The provision for income taxes consists of the following: YEARS ENDED DECEMBER 31, ------------------------------------- 1994 1995 1996 ----------- ----------- ----------- Current: Federal........................... $ 4,593,000 $ 2,775,000 $14,969,000 State............................. 1,064,000 668,000 3,564,000 Foreign........................... 3,302,000 (752,000) 926,000 ----------- ----------- ----------- 8,959,000 2,691,000 19,459,000 ----------- ----------- ----------- Deferred: Federal........................... (410,000) 6,032,000 4,261,000 State............................. (70,000) 1,691,000 1,015,000 Foreign........................... 1,686,000 3,652,000 -- ----------- ----------- ----------- 1,206,000 11,375,000 5,276,000 ----------- ----------- ----------- $10,165,000 $14,066,000 $24,735,000 =========== =========== ===========
Domestic and foreign income before income taxes include all income derived from operations in the respective U.S. and foreign geographic areas, whereas provisions for taxes on income include all income taxes payable to U.S., foreign, and other governments, as applicable, regardless of the location in which the taxable income is generated. The actual provision for income taxes differs from the expected tax expense (computed by applying the U.S. Federal corporate tax rate of 35% to income before income taxes) as follows:
YEARS ENDED DECEMBER 31, ------------------------------------ 1994 1995 1996 ----------- ----------- ----------- Computed expected income tax expense........................... $ 8,735,000 $11,456,000 $19,901,000 State income taxes, net of Federal benefit........................... 646,000 1,637,000 2,967,000 Effect of amortization of nondeductible goodwill............ 677,000 744,000 588,000 Effect of liquidation of foreign subsidiary........................ 800,000 -- -- Other, net......................... (693,000) 229,000 1,279,000 ----------- ----------- ----------- $10,165,000 $14,066,000 $24,735,000 =========== =========== ===========
F-79 INTERNATIONAL FAMILY ENTERTAINMENT, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) The tax effect of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities are presented below:
DECEMBER 31, -------------------------- 1995 1996 ------------ ------------ Deferred tax assets Initial basis differences..................... $ 9,821,000 $ 5,800,000 Accrued liabilities, participations, and residuals.................................... 7,199,000 12,131,000 Film rights................................... 18,372,000 13,434,000 Other......................................... 7,527,000 7,006,000 ------------ ------------ Total gross deferred tax assets.............. 42,919,000 38,371,000 Less valuation allowance...................... (9,599,000) (9,408,000) ------------ ------------ Net deferred tax assets...................... 33,320,000 28,963,000 ------------ ------------ Deferred tax liabilities Accounts receivable, principally due to differences in revenue recognition........... (27,735,000) (24,779,000) Property and equipment, principally due to differences in depreciation and capitalized interest........ (7,203,000) (7,991,000) Other......................................... (1,669,000) (1,661,000) ------------ ------------ Total deferred tax liabilities............... (36,607,000) (34,431,000) ------------ ------------ Net deferred tax liability................... $ (3,287,000) $ (5,468,000) ============ ============
Based on the Company's historical levels of income before income taxes and its anticipated future levels of income before income taxes, management considers it more likely than not that the Company will have sufficient taxable income to realize the full amount of its net deferred tax assets at December 31, 1996, although realization is not assured. NOTE L--RELATED PARTY TRANSACTIONS The Chairman of the Company is also the Chairman of the Board of CBN. During the year ended December 31, 1995, the Company repurchased shares of Class B Common Stock in transactions with CBN and an affiliate of CBN for an aggregate consideration of $13,819,000. Also, in December 1995, the Company and Liberty IFE entered into an exchange agreement whereby Liberty IFE exchanged its holdings of all of the Preferred Stock for shares of Common Stock, as described in Note H. The Company provides specified program time to CBN at charges equal to the Company's cost, pursuant to an agreement which extends through 2004 and automatically renews at CBN's option. Also, the Company leases certain office space and other operational facilities from CBN and, from time to time, enters into various other transactions with CBN and its subsidiaries. The Company holds a 20% interest in BBJE. BBJE provides certain services, including television production, for FiT TV and pays an annual dividend to the Company. Cash dividends received from BBJE amounted to $343,000 and $125,000 in 1995 and 1996, respectively. The Company and TCI have entered into a cable affiliation agreement, extending to 2006, with respect to The Family Channel. Under the terms of the agreement, the Company has granted TCI and its affiliates the right F-80 INTERNATIONAL FAMILY ENTERTAINMENT, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) to carry The Family Channel on certain cable television systems in exchange for subscriber fees. The Company has also entered into a long-term agreement granting TCI and its affiliates the right to carry FiT TV. The Company subleased a transponder for The Family Channel (UK), until its disposition on April 22, 1996, from Flextech. On such date, the Company sold its 61% interest in The Family Channel (UK) to Flextech, as described in Note P. Related party transactions and balances, not otherwise disclosed, are summarized as follows:
YEARS ENDED DECEMBER 31, ----------------------------------- 1994 1995 1996 ----------- ----------- ----------- Operating revenues..................... $15,662,000 $17,863,000 $23,176,000 =========== =========== =========== Operating expenses..................... $ 6,402,000 $ 8,028,000 $ 5,191,000 =========== =========== =========== Accounts receivable.................... $ 3,798,000 $ 4,632,000 $12,114,000 =========== =========== =========== Accounts payable....................... $ 855,000 $ 588,000 $ 1,195,000 =========== =========== ===========
NOTE M--EMPLOYEE BENEFIT PLANS Stock Plan The Company has a stock incentive plan (the "Stock Plan") covering 6,200,000 shares of Class B Common Stock. There were 142,226 shares and 569,100 shares available for grant as of December 31, 1995 and 1996, respectively. Prior to May 1996, awards could be made separately or in any combination of stock options and restricted stock. Beginning May 1996, awards under the Stock Plan may only be made in the form of stock options. The number of awards granted under the Stock Plan to individual employees is determined by a committee of the Company's Board of Directors. Issuances and forfeitures of restricted stock under the Stock Plan are reflected in the accompanying Consolidated Statements of Stockholders' Equity. The shares of restricted stock issued during the years ended December 31, 1994, 1995, and 1996 were sold to the employees at the par value of $.01 per share. The difference between the market value and the amount paid for restricted stock is reflected as a reduction of stockholders' equity. This unearned compensation is recognized as expense over a five-year vesting period. At December 31, 1996, 126,794 shares of restricted stock were subject to forfeiture under the Stock Plan. Stock options may be granted for the purchase of Class B Common Stock at a price not less than fair market value on the date of grant. The 1994 option awards were granted at an exercise price higher than the fair market value on the date of grant. The options are generally exercisable after one or more years and expire no later than 10 years from the date of grant. The Company has elected to continue to use the intrinsic value-based method to account for all of its employee stock-based compensation plans. Under APB Opinion No. 25, Accounting for Stock Issued to Employees, the Company has recorded no compensation costs related to its stock option plans for the years ended December 31, 1994, 1995, and 1996 because the exercise price of each option equals or exceeds the fair value of the underlying common stock as of the grant date for each stock option. Pursuant to SFAS No. 123, Accounting for Stock-Based Compensation, the Company is required to disclose the pro forma effects on net income and earnings per share data as if the Company had elected to use the fair value approach to account for all its employee stock-based compensation plans. If compensation cost for the F-81 INTERNATIONAL FAMILY ENTERTAINMENT, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) Company's plans had been determined consistent with the fair value approach set forth in SFAS No. 123, the Company's pro forma net income and pro forma earnings per share for the years ended December 31, 1995 and 1996 would have been decreased as follows:
YEARS ENDED DECEMBER 31, ------------------------- 1995 1996 ------------ ------------ Net income As reported.................................. $ 18,664,000 $ 32,125,000 ============ ============ Pro forma.................................... $ 18,002,000 $ 30,486,000 ============ ============ Primary and fully diluted earnings per common share As reported.................................. $ 0.16 $ 0.69 ============ ============ Pro forma.................................... $ 0.14 $ 0.66 ============ ============
Pro forma net income reflects only options granted in 1995 and 1996. Therefore, the full impact of calculating compensation cost for stock options under SFAS No. 123 is not reflected in the pro forma net income amounts presented above because compensation cost is reflected over the options' vesting periods and compensation cost for options granted prior to January 1, 1995 is not considered. The fair value of options granted was estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions used for grants in 1995 and 1996, respectively: risk-free interest rates of 6.23% and 5.96%; expected lives of 5.8 years and 4.6 years; expected volatility of 31.0% and 34.5%; and no dividends. A summary of stock options to purchase Class B Common Stock, as of December 31, 1994, 1995, and 1996, and changes during the years then ended, is presented below:
1994 1995 1996 ----------------- --------------------- --------------------- WEIGHTED- WEIGHTED- WEIGHTED- AVERAGE AVERAGE AVERAGE EXERCISE EXERCISE EXERCISE SHARES PRICE SHARES PRICE SHARES PRICE ------- --------- ---------- --------- ---------- --------- Options at beginning of year................... 166,250 $16.70 350,000 $14.30 2,106,250 $12.44 Granted................. 183,750 $12.13 1,812,500 $12.14 298,000 $15.70 Exercised............... -- -- (19,333) $15.16 Forfeited............... -- (56,250) $14.30 (49,417) $15.50 ------- ---------- ---------- Options at end of year.. 350,000 $14.30 2,106,250 $12.44 2,335,500 $12.81 ======= ========== ========== Options exercisable at year-end............... 36,250 $16.70 114,250 $14.48 653,560 $12.61 ======= ========== ========== Weighted-average estimated fair value of options granted during the year............... $ 5.11 $ 6.08 ========== ==========
F-82 INTERNATIONAL FAMILY ENTERTAINMENT, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) The following table summarizes information about stock options to purchase Class B Common Stock which are outstanding at December 31, 1996:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE ------------------------------------ ---------------------- WEIGHTED- WEIGHTED- WEIGHTED-AVE. AVE. AVE. REMAINING EXERCISE EXERCISE RANGE OF EXERCISE PRICES SHARES CONTRACTUAL LIFE PRICE SHARES PRICE - ------------------------ --------- ---------------- --------- ---------- ----------- $12.00 to $13.10........ 1,918,750 8.9 years $12.11 582,810 $ 12.11 $15.00 to $17.75........ 416,750 9.2 years $15.99 70,750 $ 16.70 --------- ---------- $12.00 to $17.75........ 2,335,500 9.0 years $12.81 653,560 $ 12.61 ========= ==========
Subsidiary Stock Option Plan The Company has adopted a separate stock option plan for a certain subsidiary. This stock option plan was created as a means of attracting and retaining employees and to stimulate the personal and active interest of such individuals in the Company's (and such subsidiary's) development and financial success. During 1995, this subsidiary granted an employee an option to purchase shares of its common stock. The effect of this option has been included in the calculation of pro forma net income and pro forma primary and fully diluted earnings per common share. 401(k) Plan The Company has a 401(k) retirement savings plan (the "401(k) Plan") which covers the majority of its employees. Subject to certain limitations, employees may contribute up to 15% of their compensation to the 401(k) Plan. The Company's contribution to the 401(k) Plan is discretionary as determined annually by the Company's Board of Directors. The Company contributed $405,000, $486,000, and $629,000 to the 401(k) Plan for the years ended December 31, 1994, 1995, and 1996, respectively. Employment Agreements The Company has employment agreements with its Chairman, its President & Chief Executive Officer, and most other members of its senior management. NOTE N--COMMITMENTS AND CONTINGENCIES The unpaid balance under program contracts for film rights related to the production, exhibition, or distribution of programming that was available as of the end of the year is reflected as a liability in the 1996 Consolidated Balance Sheet. The balance due as of December 31, 1996 is payable as follows: $44,050,000 in 1997; $32,692,000 in 1998; $13,721,000 in 1999; $2,551,000 in 2000; $265,000 in 2001; and $1,414,000 thereafter. The Company has commitments under various program contracts for film rights related to the production, exhibition, or distribution of programming which was not available as of December 31, 1996. The commitments under these program contracts as well as commitments under program development agreements and employment agreements totaled approximately $93,000,000 as of December 31, 1996. Subsequent to December 31, 1996, the Company made additional commitments under long-term program contracts, for the exhibition rights to certain television series and movies, totaling approximately $75,000,000. F-83 INTERNATIONAL FAMILY ENTERTAINMENT, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) Aggregate future estimated payments of accrued participations and residuals as of December 31, 1996 are as follows: $15,613,000 in 1997; $6,731,000 in 1998; $1,704,000 in 1999; $499,000 in 2000; and $844,000 in 2001. The Company leases office facilities and certain other property and equipment under noncancelable operating leases with future minimum lease payments as follows: $3,275,000 in 1997; $2,917,000 in 1998; $2,825,000 in 1999; $2,449,000 in 2000; $2,275,000 in 2001; and $22,765,000 thereafter. Total rent expense under operating leases amounted to approximately $7,770,000, $8,942,000, and $5,193,000 for the years ended December 31, 1994, 1995, and 1996, respectively. The Company has guaranteed a $12,000,000 bank credit facility for the entity that purchased the Ice Capades from the Company, as described in Note B. In addition, the Company has contingent liabilities related to legal proceedings and other matters arising from the normal course of operations. Management does not expect that amounts, if any, which may be required to satisfy such contingencies will be material in relation to the accompanying consolidated financial statements. NOTE O--DISCLOSURES ABOUT THE FAIR VALUE OF FINANCIAL INSTRUMENTS Investment in Equity Securities--Related Party As described in Note P, on April 22, 1996, the Company received 5,792,008 shares of Flextech's convertible redeemable non-voting common stock. This common stock is convertible, under certain circumstances, into Flextech's voting common stock which is listed on the London Stock Exchange. Based upon the market value of the underlying voting common stock (and the applicable foreign currency exchange rate), as of December 31, 1996, and after applying the same rate of discount as was determined by an independent valuation when the shares were received, the estimated fair value of the Company's investment in Flextech is $53,750,000. Film Rights Payable The amount reflected as film rights payable at December 31, 1996 represents future payments to be made under program contract agreements. The fair value of film rights payable is the present value of these future payments. At December 31, 1996, the present value of these future payments is approximately $85,000,000. Revolving Credit Facility and Subsidiary Credit Agreement The Company's borrowings under the Revolving Credit Facility and Subsidiary Credit Agreement are at floating rates of interest. Since the cost of carrying this indebtedness fluctuates with current market conditions, it is assumed that the carrying values would approximate fair value. Convertible Notes The Company has $23,000,000 in principal amount of Convertible Notes outstanding. These notes are convertible into 2,587,500 shares of non-voting Class C Common Stock, which Class C Common Stock is convertible, at the option of the holder, into Class B Common Stock, on a share-for-share basis, as described in Note F. The Company estimates that the fair value of the Convertible Notes approximates the trading value of the underlying shares. Accordingly, based on the average closing price of the Class B Common Stock for December 1996, the estimated fair value of the Convertible Notes is $39,783,000. Limitations Fair value estimates are made at a specific point in time based on relevant market information and information about the financial instrument. These estimates are subjective in nature and involve uncertainties and F-84 INTERNATIONAL FAMILY ENTERTAINMENT, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) matters of significant judgment and therefore cannot be determined with precision. Changes in assumptions could significantly affect these estimates. NOTE P--GAIN ON DISPOSITION OF ASSETS--RELATED PARTY On April 22, 1996, the Company consummated the sale of its television production studio in Maidstone, England and its 61% interest in The Family Channel (UK) to Flextech pursuant to agreements dated as of March 20, 1996. Flextech previously owned a 39% interest in The Family Channel (UK). Flextech's majority owner is Tele-Communications International, Inc. ("TCI International"), a majority-owned subsidiary of TCI. Another affiliate of TCI is the holder of the Convertible Notes and all of the Company's outstanding Class C Common Stock. As consideration for this transaction, the Company received (Pounds)3,000,000 (approximately $4,600,000) in cash and 5,792,008 shares of Flextech's convertible redeemable non-voting common stock. This common stock is convertible, under certain circumstances, into Flextech's voting common stock which is listed on the London Stock Exchange. The market value of the underlying voting common stock as of the date of the aforementioned agreements was $46,100,000. The shares were recorded, for financial statement purposes, at approximately (Pounds)23,000,000 ($35,458,000 based on the applicable foreign currency exchange rate on the date of closing), which reflects a discount determined by an independent valuation to allow for the lack of marketability during the required holding period. The Company received the right to "put" its holdings of Flextech's non- voting stock to TCI International, beginning in June 1997 (if the shares do not first become convertible). Upon exercise of the put, TCI International has the option of redeeming the stock for cash at the then-market value of Flextech's voting common stock. If the shares are not redeemed for cash, the Company has the option of either (i) converting 50% of the shares on a share- for-share basis into Flextech's voting common stock and 50% of the shares into common stock of the same value of TCI International, or (ii) converting 100% of the shares into common stock of the same value of TCI International. NOTE Q--INDUSTRY SEGMENT AND GEOGRAPHIC INFORMATION The Company operates in three business segments: the operation of advertiser-supported cable networks ("Cable Networks"), the production and distribution of entertainment programming ("Production & Distribution"), and the production of live entertainment shows ("Live Entertainment"). Within the Cable Networks business segment, the Company operates The Family Channel, an advertiser-supported cable television network that provides family-oriented entertainment and informational programming in the United States and FiT TV, an advertiser-supported health and fitness cable network which operates principally in the United States. IFE also operated The Family Channel (UK), an advertiser-supported network in the United Kingdom, through its disposition on April 22, 1996, and The Family Channel De Las Americas, launched on July 1, 1995, which provided Spanish-language, family-oriented entertainment programming, as well as fitness programming, to Mexico, Central America, and portions of South America, through the discontinuance of its operations in November 1996. Within the Production & Distribution business segment, the Company produces and distributes television programming in the United States and throughout many other parts of the world ("MTM Operations"), co- F-85 INTERNATIONAL FAMILY ENTERTAINMENT, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) produced a motion picture through Family Channel Pictures, and operated a television production studio in Maidstone, England (the "UK Studio") until its disposition on April 22, 1996. Within the Live Entertainment business segment, the Company produces live musical variety shows and, in 1995, operated the Ice Capades, a touring ice show. The following table sets forth comparative information regarding operating revenues, operating income or loss, total assets, depreciation and amortization, and capital expenditures by business segment.
YEARS ENDED DECEMBER 31, ---------------------------------------- 1994 1995 1996 ------------ ------------ ------------ Operating Revenues Cable Networks...................... $178,746,000 $213,775,000 $249,620,000 Production & Distribution........... 70,340,000 86,990,000 104,519,000 Live Entertainment.................. 8,951,000 10,481,000 7,751,000 Intersegment Eliminations........... (15,987,000) (16,388,000) (29,080,000) ------------ ------------ ------------ $242,050,000 $294,858,000 $332,810,000 ============ ============ ============ Operating Income (Loss) Cable Networks...................... $ 31,482,000 $ 42,899,000 $ 77,635,000 Production & Distribution........... (1,066,000) 1,155,000 (19,029,000) Live Entertainment.................. (1,880,000) (5,012,000) (2,782,000) Intersegment Eliminations........... (3,089,000) (644,000) 340,000 ------------ ------------ ------------ $ 25,447,000 $ 38,398,000 $ 56,164,000 ============ ============ ============ Total Assets Cable Networks...................... $276,875,000 $286,738,000 $338,188,000 Production & Distribution........... 174,078,000 171,892,000 211,402,000 Live Entertainment.................. 22,305,000 27,783,000 26,392,000 Intersegment Eliminations........... (4,986,000) (4,986,000) (7,299,000) ------------ ------------ ------------ $468,272,000 $481,427,000 $568,683,000 ============ ============ ============ Depreciation and Amortization Cable Networks...................... $ 74,044,000 $ 79,313,000 $ 83,415,000 Production & Distribution........... 48,832,000 63,367,000 100,885,000 Live Entertainment.................. 1,035,000 1,772,000 1,488,000 Intersegment Eliminations........... (11,069,000) (13,335,000) (29,471,000) ------------ ------------ ------------ $112,842,000 $131,117,000 $156,317,000 ============ ============ ============ Capital Expenditures Cable Networks...................... $ 7,049,000 $ 7,418,000 $ 7,622,000 Production & Distribution........... 1,962,000 2,037,000 1,808,000 Live Entertainment.................. 432,000 6,107,000 421,000 ------------ ------------ ------------ $ 9,443,000 $ 15,562,000 $ 9,851,000 ============ ============ ============
F-86 INTERNATIONAL FAMILY ENTERTAINMENT, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) The following table sets forth comparative information regarding operating revenues, operating income or loss, total assets, depreciation and amortization, and capital expenditures by geographic area.
YEARS ENDED DECEMBER 31, ---------------------------------------- 1994 1995 1996 ------------ ------------ ------------ Operating Revenues Domestic............................ $229,848,000 $281,143,000 $327,415,000 International....................... 13,771,000 16,285,000 6,070,000 Interarea Eliminations.............. (1,569,000) (2,570,000) (675,000) ------------ ------------ ------------ $242,050,000 $294,858,000 $332,810,000 ============ ============ ============ Operating Income (Loss) Domestic............................ $ 39,982,000 $ 53,045,000 $ 65,047,000 International....................... (14,495,000) (14,268,000) (9,042,000) Interarea Eliminations.............. (40,000) (379,000) 159,000 ------------ ------------ ------------ $ 25,447,000 $ 38,398,000 $ 56,164,000 ============ ============ ============ Total Assets Domestic............................ $419,051,000 $438,843,000 $532,305,000 International....................... 49,547,000 43,735,000 36,378,000 Interarea Eliminations.............. (326,000) (1,151,000) -- ------------ ------------ ------------ $468,272,000 $481,427,000 $568,683,000 ============ ============ ============ Depreciation and Amortization Domestic............................ $109,350,000 $126,452,000 $152,312,000 International....................... 5,021,000 6,551,000 4,797,000 Interarea Eliminations.............. (1,529,000) (1,886,000) (792,000) ------------ ------------ ------------ $112,842,000 $131,117,000 $156,317,000 ============ ============ ============ Capital Expenditures Domestic............................ $ 7,883,000 $ 14,890,000 $ 9,810,000 International....................... 1,560,000 672,000 41,000 ------------ ------------ ------------ $ 9,443,000 $ 15,562,000 $ 9,851,000 ============ ============ ============
Included in domestic operating revenues are export sales of $15,320,000, $18,091,000, and $15,355,000 for the years ended December 31, 1994, 1995, and 1996, respectively. F-87 [INSIDE BACK COVER] Fox Kids Worldwide logo. - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- NO PERSON HAS BEEN AUTHORIZED IN CONNECTION WITH THE EXCHANGE OFFER MADE HEREBY TO GIVE ANY INFORMATION OR MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS OR IN THE ACCOMPANYING LETTER OF TRANSMITTAL, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED. NEITHER THIS PROSPECTUS NOR THE ACCOMPANYING LETTER OF TRANSMITTAL NOR BOTH OF THEM TOGETHER CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF ANY OFFER TO BUY ANY SECURITIES OTHER THAN THE SECURITIES TO WHICH IT RELATES OR AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY SUCH SECURITIES BY ANY PERSON IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION IS UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR THE ACCOMPANYING LETTER OF TRANSMITTAL NOR BOTH OF THEM TOGETHER NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE. --------------- TABLE OF CONTENTS
PAGE ---- Forward-Looking Statements................................................. iv Available Information...................................................... iv Summary.................................................................... 1 Formation of Company....................................................... 12 Risk Factors............................................................... 13 The Exchange Offer......................................................... 22 Use of Proceeds............................................................ 30 Capitalization............................................................. 31 Unaudited Pro Forma Consolidated Financial Information..................... 32 Selected Historical Consolidated Financial Data...................................................................... 35 Management's Discussion and Analysis of Financial Condition and Results of Operations................................................................ 40 Business................................................................... 49 Management................................................................. 69 Principal Stockholders..................................................... 74 Description of Equity Securities........................................... 76 Certain Transactions....................................................... 78 Description of Other Indebtedness.......................................... 84 Description of the Notes................................................... 85 Book-Entry; Delivery and Form.............................................. 114 Certain United States Federal Income Tax Considerations.................... 117 Plan of Distribution....................................................... 119 Legal Matters.............................................................. 119 Experts.................................................................... 119 Index to Financial Statements.............................................. F-1
- ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- $1,093,670,000 [LOGO OF FOX KIDS WORLDWIDE, INC.] FOX KIDS WORLDWIDE, INC. $475,000,000 9 1/4% SENIOR NOTES DUE 2007 $618,670,000 10 1/4% SENIOR DISCOUNT NOTES DUE 2007 --------------- PROSPECTUS --------------- , 1998 - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION The following table itemizes the expenses incurred by the Registrant in connection with the issuance and distribution of the Notes being registered. All the amounts shown are estimates except the Securities and Exchange Commission registration fee. Registration fee--Securities and Exchange Commission ............ $250,750 Accounting fees and expenses .................................... Legal fees and expenses (other than blue sky) ................... Printing ........................................................ Trustee's, exchange agent fees .................................. Miscellaneous ................................................... -------- Total ......................................................... $ ========
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS With respect to the Company, Section 145 of the General Corporation Law of the State of Delaware empowers a Delaware corporation to indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the corporation) by reason of the fact that such person is or was a director, officer, employee or agent of such corporation or is or was serving at the request of such corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise. The indemnity may include expenses (including attorney's fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by such person in connection with such action, suit or proceeding, provided that such person acted in good faith and in a manner such person reasonably believed to be in or not opposed to the best interests of the corporation and, with respect to any criminal action or proceeding, had no reasonable cause to believe such person's conduct was unlawful. A Delaware corporation may indemnify directors, officers, employees and other agents of such corporation in an action by or in the right of the corporation under the same conditions, except that no indemnification is permitted without judicial approval if the person to be indemnified has been adjudged to be liable to the corporation. Where a director, officer, employee or agent of the corporation is successful on the merits or otherwise in the defense of any action, suit or proceeding referred to above or in defense of any claim, issue or matter therein, the corporation must indemnify such person against the expenses (including attorney's fees) which he or she actually and reasonably incurred in connection therewith. The Company's Bylaws contain provisions that provide for indemnification of officers and directors to the fullest extent permitted by, and in the manner permissible under, the General Corporation Law of the State of Delaware. As permitted by Section 102(b)(7) of the General Corporation Law of the State of Delaware, the Company's Corrected and Restated Certificate of Incorporation contains a provision eliminating the personal liability of a director to the Company's or its stockholders for monetary damages for breach of fiduciary duty as a director, subject to certain exceptions. The Company maintains policies insuring its respective officers, directors or members and managers, as the case may be, against certain civil liabilities, including liabilities under the Securities Act. Pursuant to the Registration Rights Agreement, the Company has agreed to indemnify the holders of the registrable Notes against certain liabilities. Also pursuant to the Registration Rights Agreement, the Company and certain broker-dealers, including certain persons associated with such broker-dealers, have agreed to indemnify each other against certain liabilities. II-1 ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES (a) Since November 1, 1994, the Registrant and its predecessors have issued and sold the following unregistered securities: (1) On September 26, 1996, FCN Holding issued and sold to Allen and Company Incorporated ("Allen") and its affiliates including Stanley Shuman ("Shuman"), an employee of Allen, effective as of April 3, 1996, 16 16/99 shares of the common stock of FCN Holding valued at $10 million, in consideration for financial advisory services and other investment banking services rendered by Allen and Shuman to FCN Holding in connection with the formation of the LLC. (2) On August 1, 1997, in connection with the Company's acquisition of a controlling interest in IFE, (i) Fox Broadcasting Sub exchanged its capital stock in FCN Holding for 7,920,000 shares of Class B Common Stock of the Company, (ii) the other stockholder of FCN Holding exchanged its capital stock in FCN Holding for an aggregate of 160,000 shares of Class A Common Stock of the Company, (iii) Haim Saban and the Saban Stockholders (none of whom is affiliated with News Corp.) exchanged their capital stock of Saban for an aggregate of 7,920,000 shares of Class B Common Stock of the Company and (iv) all outstanding management options to purchase Saban capital stock became options to purchase an aggregate of 646,548 shares of Class A Common Stock of the Company. (3) On October 28, 1997, the Company sold the Old Notes to the Initial Purchasers, which subsequently placed the Old Notes with qualified institutional buyers in reliance upon Rule 144A promulgated under the Securities Act and with a limited number of accredited investors. (b) There were no underwritten offerings employed or commissions paid to any person in connection with any of the transactions set forth in Item 15(a). The issuances of the securities set forth in Item 15(a) were deemed to be exempt from registration under the Securities Act of 1933, as amended (the "Act") in reliance on Section 4(2) of such Act as transactions by an issuer not involving any public offering. The recipients of securities in each such transaction represented their intentions to acquire the securities for investment only and not with a view to or for sale in connection with any distribution thereof and appropriate legends were affixed to the securities issued in such transactions. All recipients of these securities had adequate access, through their relationships with the Registrant and its subsidiaries, to information about the Registrant and each affiliated issuer of securities involved in the transactions. II-2 ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES (a) Exhibits:
EXHIBIT NO. DESCRIPTION ----------- ----------- ***1.1 Purchase Agreement dated October 22, 1997 among Fox Kids Worldwide, Inc., as issuer, and Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated, Citicorp Securities, Inc., Bear, Stearns & Co. Inc., Donaldson, Lufkin & Jenrette Securities Corporation, and Morgan Stanley & Co. Incorporated, as initial purchasers. ***2.1 Share Transfer Agreement dated as of April 15, 1996 by and among Saban International Paris, as Purchaser and certain parties as Sellers relating to Creativite & Developpement.(1) ***2.2 Agreement for the Purchase of Film Assets dated as of December 31, 1995 by and between Vesical Limited and Saban International N.V.(1) ***2.3 Agreement and Plan of Merger dated as of June 11, 1997 by and among Fox Kids Worldwide, Inc., Fox Kids Merger Corporation and International Family Entertainment, Inc. ***2.4 Stock Purchase Agreement dated as of June 11, 1997 by and between Fox Kids Worldwide, Inc., M.G. "Pat" Robertson, individually and as trustee of certain trusts named therein, Lisa N. Robertson and Timothy B. Robertson, as joint tenants, and Tim Robertson, individually, as trustee of certain trusts named therein, and as custodian to and for each of Abigail H. Robertson, Laura N. Robertson, Elizabeth C. Robertson, Willis H. Robertson and Caroline S. Robertson. ***2.5 Stock Purchase Agreement dated as of June 11, 1997 by and between Fox Kids Worldwide, Inc. and The Christian Broadcasting Network, Inc. ***2.6 Stock Purchase Agreement dated as of June 11, 1997 by and between Fox Kids Worldwide, Inc. and Regent University. ***2.7 Amended and Restated Agreement dated as of August 1, 1997 by and among Fox Kids Worldwide, Inc., Saban Entertainment, Inc., Fox Broadcasting Sub, Inc., Allen & Company Incorporated, Haim Saban and certain entities listed on Schedule A thereto. ***3.1 Corrected Restated Certificate of Incorporation of the Registrant. ***3.2 Amended and Restated Bylaws of the Registrant. ***4.1 Senior Notes Indenture dated as of October 28, 1997 (the "Senior Notes Indenture") between Fox Kids Worldwide, Inc., as obligor, and The Bank of New York, as trustee, and form of Notes. ***4.2 Senior Discount Notes Indenture dated as of October 28, 1997 (the "Senior Discount Notes Indenture") between Fox Kids Worldwide, Inc., as obligor, and The Bank of New York, as trustee, and form of Notes. ***4.3 Senior Notes Registration Rights Agreement dated as of October 28, 1997 between Fox Kids Worldwide, Inc., as issuer, and Merrill Lynch, Pierce, Fenner & Smith Incorporated, Citicorp Securities, Inc., Bear, Stearns & Co. Inc., Donaldson, Lufkin & Jenrette Securities Corporation, and Morgan Stanley & Co. as initial purchasers. ***4.4 Senior Discount Notes Registration Rights Agreement dated as of October 28, 1997 between Fox Kids Worldwide, Inc., as issuer, and Merrill Lynch, Pierce, Fenner & Smith Incorporated, Citicorp Securities, Inc., Bear, Stearns & Co. Inc., Donaldson, Lufkin & Jenrette Securities Corporation, and Morgan Stanley & Co., as initial purchasers. ***4.5 Senior Notes Liquidated Damages Agreement dated as of October 28, 1997 between Fox Kids Worldwide, Inc., as issuer, and Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated, Citicorp Securities, Inc., Bear, Stearns & Co. Inc., Donaldson, Lufkin & Jenrette Securities Corporation, and Morgan Stanley & Co., as initial purchasers.
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EXHIBIT NO. DESCRIPTION ----------- ----------- ***4.6 Senior Discount Notes Liquidated Damages Agreement dated as of October 28, 1997 between Fox Kids Worldwide, Inc., as issuer, and Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated, Citicorp Securities, Inc., Bear, Stearns & Co. Inc., Donaldson, Lufkin & Jenrette Securities Corporation, and Morgan Stanley & Co., as initial purchasers. *5.1 Opinion of Squadron, Ellenoff, Plesent & Sheinfeld, LLP regarding the validity of the Notes. ***10.1 Amended and Restated Strategic Stockholders Agreement dated as of August 1, 1997 by and among Haim Saban, certain entities listed on Schedule A thereto, Fox Broadcasting Company, Fox Broadcasting Sub, Inc., and Allen & Company Incorporated. ***10.2 Employment Assumption Agreement dated as of July 31, 1997 by and among Saban Entertainment, Inc., Fox Kids Worldwide, Inc. and Mel Woods. ***10.3 Employment Assumption Agreement dated as of July 31, 1997 by and among Fox Kids Worldwide, L.L.C., Fox Kids Worldwide, Inc. and Haim Saban. 10.4 Reserved. ***10.5 Form of Indemnification Agreement and Schedule of Indemnified Parties. ***10.6 Employment Agreement dated as of April 1, 1997 between Saban Entertainment, Inc. and William Josey. **10.7 Employment Agreement dated as of December 22, 1995 between Fox Kids Worldwide, L.L.C. and Haim Saban. ***10.8 Employment Agreement dated as of September 1, 1996 between Fox Kids Worldwide, Inc. and Shuki Levy; Stock Option Agreement dated as of June 1, 1994 between Saban Entertainment, Inc. and Shuki Levy, as amended by Amendment No. 1. ***10.9 Employment Agreement dated as of June 1, 1994 between Saban Entertainment, Inc. and Mel Woods, as amended by Amendment No. 1 to Employment Agreement dated as of September 26, 1996. 10.10 Reserved. **10.11 LLC Formation Agreement dated as of November 1, 1995 among Saban Entertainment, Inc., FCN Holding Company and Fox Broadcasting Company, Inc. ***10.12 Operating Agreement for Fox Kids Worldwide, L.L.C. dated as of December 22, 1995 by and among Saban Entertainment, Inc., FCN Holding, Inc. and Fox Broadcasting Company. **10.13 Amendment No. 1 to Operating Agreement dated as of September 26, 1996, by and among Saban Entertainment, Inc., FCN Holding, Inc. and Fox Broadcasting Company. ***10.14 Amendment No. 2 to Operating Agreement dated as of July 31, 1997 by and among Saban Entertainment, Inc., FCN Holding, Inc., Fox Broadcasting Company and Fox Kids Worldwide, Inc. **10.15 Asset Assignment Agreement dated as of December 22, 1995 by and between Fox Kids Worldwide, L.L.C., on the one hand, and Fox, Inc., Fox Broadcasting Company, Twentieth Century Fox Film Corporation, Fox Television Stations, Inc., and FCN Holding, Inc., on the other hand.+ **10.16 Management Agreement dated as of December 22, 1995 by and among Fox Kids Worldwide, L.L.C., Saban Entertainment, Inc. and FCNH Sub, Inc. ***10.17 Stock Ownership Agreement dated as of December 22, 1995 by and among Haim Saban, certain entities listed on Schedule 1.1(a) thereto and Fox Kids Worldwide, L.L.C. ***10.18 Amendment No. 1 to Stock Ownership Agreement dated as of September 26, 1996 by and among Haim Saban, certain entities listed on Schedule "A" thereto, Fox Broadcasting Sub, Inc., and Fox Broadcasting Company. 10.19 Home Video Rights Acquisition Agreement dated as of August 8, 1996 among Saban Entertainment, Inc., Ventura Film Distributors, B.V. and Twentieth Century Fox Home Entertainment, Inc.+ ***10.20 Form of Fox Broadcasting Company Station Affiliate Agreement.
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EXHIBIT NO. DESCRIPTION ----------- ----------- ***10.21 Merchandising Rights Acquisition Agreement dated as of July 1, 1990 between Twentieth Century Fox Licensing and Merchandising, a unit of Ffox Inc. and Fox Children's Network, Inc.+ ***10.22 Indemnification Agreement dated as of December 22, 1995 between Fox Broadcasting Company and Fox Children's Network, Inc. ***10.23 Distribution Rights Acquisition Agreement dated as of September 1, 1990 between Twentieth Century Fox Film Corporation and Fox Children's Network, Inc.+ ***10.24 Administration Agreement dated as of February 7, 1990 between Fox Broadcasting Company and Fox Children's Network, Inc. ***10.25 Registration Agreement (the "Saban/Fox Registration Agreement") dated as of December 22, 1995 among Saban Entertainment, Inc., Haim Saban, certain entities listed on Schedule A thereto, Fox Broadcasting Company, Inc., and FCN Holding, Inc. ***10.26 Amendment No. 1 to Saban/Fox Registration Agreement dated as of September 27, 1996. ***10.27 Contribution and Exchange Agreement dated June 11, 1997 by and among Liberty Media Corporation, Liberty IFE, Inc. and Fox Kids Worldwide, Inc. ***10.28 Guarantee dated as of December 22, 1995 by The News Corporation Limited. ***10.29 First Amendment to 10960 Wilshire Boulevard Lease dated as of August 1, 1997. ***10.30 Guaranty of Lease by The News Corporation Limited and News Publishing Australia Limited in favor of Beacon Properties, L.P., dated as of August 1, 1997. 10.31 Second Amended and Restated Credit Agreement dated as of October 28, 1997 among FCN Holding, Inc., International Family Entertainment, Inc. and Saban Entertainment, Inc., as Borrowers, and Fox Kids Holdings, LLC, as Guarantor, and the initial lenders named therein, as Initial Lenders, and Citicorp U.S.A., Inc., as Administrative Agent, and Citicorp Securities, Inc. and Bank Boston, N.A., as Co-Arrangers.+ 10.32 Letter Amendment No. 1 to the Second Amended and Restated Credit Agreement dated as of November 18, 1997. ***10.33 Funding Agreement dated as of June 11, 1997 by and among The News Corporation Limited, News Publishing Australia Limited and Fox Kids Worldwide, Inc. ***10.34 Guaranty dated as of June 11, 1997 by The News Corporation Limited in favor of International Family Entertainment, Inc. ***10.35 Distribution Agreement dated as of August 21, 1992, as amended, between Saban International N.V. and Saban International Services, Inc. on the one hand and Toei Company Ltd.+ ***10.36 Memorandum of Agreement dated as of January 19, 1996 between Saban Merchandising, Inc. and Ventura Film Distributors, B.V. on the one hand and Bandai America Incorporated, on the other hand.+ 10.37 Reserved. ***10.38 10960 Wilshire Boulevard Office Lease dated as of July 17, 1995 between 10960 Property Corporation and Saban Entertainment, Inc. ***10.39 Production Facility Agreements dated as of June 7, 1994 and January 5, 1994 between Magic Movie Studios of Valencia, Ltd. and Saban Entertainment, Inc. ***10.40 Letter Agreement dated as of January 1, 1995 between Saban International, N.V. and Duveen Trading Ltd.
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EXHIBIT NO. DESCRIPTION ----------- ----------- ***10.41 Barter Syndication Agreement dated as of January 5, 1996 between Saban Entertainment, Inc. and Fox Broadcasting Company, Inc. ***10.42 Letter Agreement dated as of September 26, 1996 but effective as of April 3, 1996 by and among Stanley S. Shuman, FCN Holding, Inc., and Allen & Company Incorporated, as amended by that certain Side Letter Agreement dated as of September 26, 1996 but effective as of April 3, 1996. ***10.43 First Amendment to the Contribution and Exchange Agreement dated as of August 1, 1997 by and among Liberty Media Corporation, Liberty IFE, Inc. and Fox Kids Worldwide, Inc. ***10.44 Agreement Re Registration Rights dated as of August 1, 1997 by and among Saban Entertainment, Inc., Haim Saban, certain entities listed on Schedule A to the Saban/Fox Registration Agreement, Fox Broadcasting Company, FCN Holding, Inc., Fox Kids Worldwide, Inc., Liberty Media Corporation and Liberty IFE, Inc. 10.45 Exchange Agreement dated August 1, 1997 among News Publishing Australia Limited, Liberty Media Corporation and Liberty IFE, Inc. ***10.46 Agreement Re Transfer of LLC Interests dated as of July 31, 1997 by and among Fox Kids Worldwide, Inc., Fox Kids Worldwide, L.L.C. and Fox Broadcasting Company. 10.47 Subordinated Note Agreement dated July 31, 1997 by and among Fox Broadcasting Company, as lender, Fox Kids Worldwide, Inc., as borrower, and Citicorp USA, Inc.; Subordinated Promissory Note dated July 31, 1997 made by Fox Kids Worldwide, Inc., as borrower, in favor of Fox Broadcasting Company, as lender; First Amendment to Subordinated Note Agreement dated September 4, 1997; Second Amendment to Subordinated Note Agreement dated October 28, 1997 and Subordinated Promissory Note dated October 28, 1997 made by Fox Kids Worldwide Inc., as borrower in favor of Fox Broadcasting Company, as lender. ***10.48 Subordinated Note dated August 29, 1997 between Fox Kids Worldwide, Inc., as borrower, and News America Holdings Incorporated, as lender, and Subordinated Note Agreement dated August 9, 1997 between Fox Kids Worldwide, Inc., as borrower, News America Holdings Incorporated, as lender, and Citicorp USA, Inc. and First Amendment to Subordinated Note Agreement dated October 28, 1997. 10.49 Amendment to Affiliation Agreement dated June 11, 1997, between International Family Entertainment, Inc. and Satellite Services, Inc.+ 10.50 Letter of Amendment dated as of May 16, 1996, amending the International Family Entertainment, Inc. Family Channel Affiliation Agreement dated as of December 28, 1989, between Satellite Services, Inc. and International Family Entertainment, Inc.+ 10.51 Program Time Agreement dated as of January 5, 1990, between The Christian Broadcasting Network, Inc. and International Family Entertainment, Inc. and Amendment No. 1 to Program Time Agreement dated as of June 11, 1997. 10.52 International Family Entertainment, Inc. Family Channel Affiliation Agreement, dated as of December 28, 1989, between Satellite Services, Inc. and International Family Entertainment, Inc.+ 10.53 Amendment, dated as of January 1, 1994, amending the International Family Entertainment, Inc. Family Channel Affiliation Agreement, dated as of December 28, 1989, between Satellite Services, Inc. and International Family Entertainment Inc. ***10.54 Registration Rights Agreement dated August 1, 1997 by and among Fox Kids Worldwide, Inc., Liberty Media Corporation and Liberty IFE, Inc. 10.55 Galaxy V Transponder Purchase Agreement, dated as of January 23, 1992, between Hughes Communications Galaxy, Inc. and International Family Entertainment, Inc.+ 10.56 GE C-3/C-4 Satellite Transponder Sales Agreement dated as of July 7, 1989 between GE American Communications and The Christian Broadcasting Network Inc.+ 10.57 C-3/C-4 Satellite Transponder Sales Agreement Amendment Number One dated as of December 15, 1989, between GE American Communications, Inc. and The Christian Broadcasting Network, Inc. 10.58 C3/C4 Satellite Transponder Sales Agreement Amendment Number Two dated as of December 15, 1989, between GE American Communications, Inc. and The Christian Broadcasting Network, Inc.+
II-6
EXHIBIT NO. DESCRIPTION ----------- ----------- 10.59 Letter of Amendment dated September 30, 1991, re: C-3/C-4 Satellite Transponder Sales Agreement by and between GE American Communications, Inc. and The Christian Broadcasting Network, Inc. as predecessor in interest to International Family Entertainment, Inc. 10.60 C3/C4 Satellite Transponder Sales Agreement Amendment Number Four dated as of November 24, 1992 by and between GE American Communications, Inc. and International Family Entertainment, Inc. ***12.1 Ratio of Earnings to Fixed Charges. ***21.1 Subsidiaries of the Registrant. *23.1 Consent of Squadron, Ellenoff, Plesent & Sheinfeld, LLP (included in Exhibit 5.1 hereto). 23.2 Consent of Ernst & Young LLP regarding Saban Entertainment, Inc., regarding FCN Holding, Inc., and regarding FCN Holding, Inc., Saban Entertainment, Inc., and Fox Kids Worldwide, L.L.C. 23.3 Consent of KPMG Peat Marwick LLP regarding International Family Entertainment, Inc. **24.1 Power of Attorney. ***24.2 Power of Attorney of Lawrence Jacobson dated January 22, 1998. ***25.1 Statement of Eligibility of The Bank of New York, as Trustee. ***27.1 Financial Data Schedule. *99.1 Form of Letter of Transmittal. *99.2 Form of Note of Guaranteed Delivery. *99.3 Form of Exchange Agent Agreement.
- -------- * To be supplied by amendment. ** Previously filed as an exhibit to the Registrant's Form S-1 on September 27, 1996 *** Previously filed as an exhibit to the Registrant's Amendment No. 1 to Form S-1 on January 26, 1998. + Portions of exhibits deleted and filed separately with the Securities and Exchange Commission pursuant to a request for confidentiality. (1) Upon request, the Registrant will furnish supplementally to the Securities and Exchange Commission a copy of omitted schedules. (b) Financial Statement Schedules. FCN Holding, Inc., Saban Entertainment, Inc., and Fox Kids Worldwide, L.L.C. (from and after the date of the Reorganization, Fox Kids Worldwide, Inc.) Schedule II-- Valuation and Qualifying Accounts FCN Holding, Inc. Schedule II--Valuation and Qualifying Accounts Saban Entertainment, Inc. Schedule II--Valuation and Qualifying Accounts All other schedules for which provisions is made in the applicable accounting regulations of the Commission are either not required under the related instructions or are inapplicable, and therefore have been omitted. II-7 ITEM 17 UNDERTAKINGS 1. Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, members, officers and controlling persons, as the case may be, of the registrant pursuant to the foregoing provisions or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person, as the case may be, of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person, as the case may be, in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjustment of such issue. 2. The undersigned registrant hereby undertakes that: (1) For the purposes of determining any liability under the Securities Act of 1933, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this registration statement as of the time it was declared effective. (2) For the purpose of determining any liability under the Securities Act of 1933, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. II-8 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the Registrant has duly caused this Amendment No. 2 to the Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Los Angeles, State of California, on the 20th day of February, 1998. Fox Kids Worldwide, Inc. By: /s/ Mel Woods ____________________________________ MEL WOODS PRESIDENT, CHIEF OPERATING OFFICER AND CHIEF FINANCIAL OFFICER Pursuant to the requirements of the Securities Act of 1933, this Amendment No. 2 to the Registration Statement has been signed by the following persons in the capacities and on the dates stated: SIGNATURE TITLE DATE /s/ Haim Saban Chairman of the Board ____________________________________ and Chief Executive February 20, 1998 HAIM SABAN Officer (Principal Executive Officer) /s/ Mel Woods President, Chief ____________________________________ Operating Officer, February 20, 1998 MEL WOODS Chief Financial Officer and Director (Principal Financial Officer) /s/ Mark Ittner Chief Accounting ____________________________________ Officer (Principal February 20, 1998 MARK ITTNER Accounting Officer) /s/ Shuki Levy* Director ____________________________________ February 20, 1998 SHUKI LEVY /s/ K. Rupert Murdoch* Director ____________________________________ February 20, 1998 K. RUPERT MURDOCH /s/ Chase Carey* ____________________________________ Director CHASE CAREY February 20, 1998 /s/ Lawrence Jacobson** Director ____________________________________ February 20, 1998 LAWRENCE JACOBSON - -------- * Executed by Mel Woods as attorney-in-fact pursuant to a power of attorney included in the Registration Statement as originally filed on September 26, 1996. ** Executed by Mel Woods as attorney-in-fact pursuant to a power of attorney included as Exhibit 24.2 in Amendment No. 1 to Registration Statement, filed on January 26, 1998. II-9 SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
ADDITIONS ------------------ BALANCE CHARGED AT TO COSTS CHARGED BALANCE BEGINNING AND TO OTHER AT END OF DESCRIPTION OF PERIOD EXPENSES ACCOUNTS DEDUCTIONS PERIOD ----------- --------- -------- -------- ---------- --------- SABAN ENTERTAINMENT, INC. FY ended May 1994 Allowance for doubtful accounts.................. 385,000 0 0 0 385,000 FY ended May 1995 Allowance for doubtful accounts.................. 385,000 1,000,000 0 0 1,385,000 Five months ended October 1995 Allowance for doubtful accounts.................. 1,385,000 0 0 0 1,385,000
S-1 SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
ADDITIONS ------------------- BALANCE AT CHARGED TO CHARGED BALANCE AT BEGINNING COSTS AND TO OTHER END OF DESCRIPTION OF PERIOD EXPENSES ACCOUNTS DEDUCTIONS PERIOD ----------- ---------- ---------- -------- ---------- ---------- FCN HOLDING, INC. FY ended July 3, 1994 Allowance for doubtful accounts............... 0 0 0 0 0 FY ended July 2, 1995 Allowance for doubtful accounts............... 0 480,000 0 0 480,000 Four months ended October 29, 1995 Allowance for doubtful accounts............... 480,000 0 0 0 480,000
S-2 SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
ADDITIONS BALANCE ------------------- AT CHARGED TO CHARGED BALANCE BEGINNING COSTS AND TO OTHER AT END OF DESCRIPTION OF PERIOD EXPENSES ACCOUNTS DEDUCTIONS PERIOD ----------- --------- ---------- -------- ---------- --------- FCN HOLDING, INC., SABAN ENTERTAINMENT, INC. AND FOX KIDS WORLDWIDE, L.L.C. (FROM AND AFTER THE DATE OF THE REORGANIZATION, FOX KIDS WORLDWIDE, INC.) Eight months ended June 30, 1996 Allowance for doubtful accounts................ 1,865,000 0 0 (175,000) 1,690,000 FY ended June 30, 1997 Allowance for doubtful accounts................ 1,690,000 200,000 0 (480,000) 1,410,000 Three months ended September 30, 1997........ 1,410,000 0 0 0 1,410,000
S-3 EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION ----------- ----------- ***1.1 Purchase Agreement dated October 22, 1997 among Fox Kids Worldwide, Inc., as issuer, and Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated, Citicorp Securities, Inc., Bear, Stearns & Co. Inc., Donaldson, Lufkin & Jenrette Securities Corporation, and Morgan Stanley & Co. Incorporated, as initial purchasers. ***2.1 Share Transfer Agreement dated as of April 15, 1996 by and among Saban International Paris, as Purchaser and certain parties as Sellers relating to Creativite & Developpement.(1) ***2.2 Agreement for the Purchase of Film Assets dated as of December 31, 1995 by and between Vesical Limited and Saban International N.V.(1) ***2.3 Agreement and Plan of Merger dated as of June 11, 1997 by and among Fox Kids Worldwide, Inc., Fox Kids Merger Corporation and International Family Entertainment, Inc. ***2.4 Stock Purchase Agreement dated as of June 11, 1997 by and between Fox Kids Worldwide, Inc., M.G. "Pat" Robertson, individually and as trustee of certain trusts named therein, Lisa N. Robertson and Timothy B. Robertson, as joint tenants, and Tim Robertson, individually, as trustee of certain trusts named therein, and as custodian to and for each of Abigail H. Robertson, Laura N. Robertson, Elizabeth C. Robertson, Willis H. Robertson and Caroline S. Robertson. ***2.5 Stock Purchase Agreement dated as of June 11, 1997 by and between Fox Kids Worldwide, Inc. and The Christian Broadcasting Network, Inc. ***2.6 Stock Purchase Agreement dated as of June 11, 1997 by and between Fox Kids Worldwide, Inc. and Regent University. ***2.7 Amended and Restated Agreement dated as of August 1, 1997 by and among Fox Kids Worldwide, Inc., Saban Entertainment, Inc., Fox Broadcasting Sub, Inc., Allen & Company Incorporated, Haim Saban and certain entities listed on Schedule A thereto. ***3.1 Corrected Restated Certificate of Incorporation of the Registrant. ***3.2 Amended and Restated Bylaws of the Registrant. ***4.1 Senior Notes Indenture dated as of October 28, 1997 (the "Senior Notes Indenture") between Fox Kids Worldwide, Inc., as obligor, and The Bank of New York, as trustee, and form of Notes. ***4.2 Senior Discount Notes Indenture dated as of October 28, 1997 (the "Senior Discount Notes Indenture") between Fox Kids Worldwide, Inc., as obligor, and The Bank of New York, as trustee, and form of Notes. ***4.3 Senior Notes Registration Rights Agreement dated as of October 28, 1997 between Fox Kids Worldwide, Inc., as issuer, and Merrill Lynch, Pierce, Fenner & Smith Incorporated, Citicorp Securities, Inc., Bear, Stearns & Co. Inc., Donaldson, Lufkin & Jenrette Securities Corporation, and Morgan Stanley & Co. as initial purchasers. ***4.4 Senior Discount Notes Registration Rights Agreement dated as of October 28, 1997 between Fox Kids Worldwide, Inc., as issuer, and Merrill Lynch, Pierce, Fenner & Smith Incorporated, Citicorp Securities, Inc., Bear, Stearns & Co. Inc., Donaldson, Lufkin & Jenrette Securities Corporation, and Morgan Stanley & Co., as initial purchasers. ***4.5 Senior Notes Liquidated Damages Agreement dated as of October 28, 1997 between Fox Kids Worldwide, Inc., as issuer, and Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated, Citicorp Securities, Inc., Bear, Stearns & Co. Inc., Donaldson, Lufkin & Jenrette Securities Corporation, and Morgan Stanley & Co., as initial purchasers.
EXHIBIT NO. DESCRIPTION ----------- ----------- ***4.6 Senior Discount Notes Liquidated Damages Agreement dated as of October 28, 1997 between Fox Kids Worldwide, Inc., as issuer, and Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated, Citicorp Securities, Inc., Bear, Stearns & Co. Inc., Donaldson, Lufkin & Jenrette Securities Corporation, and Morgan Stanley & Co., as initial purchasers. *5.1 Opinion of Squadron, Ellenoff, Plesent & Sheinfeld, LLP regarding the validity of the Notes. ***10.1 Amended and Restated Strategic Stockholders Agreement dated as of August 1, 1997 by and among Haim Saban, certain entities listed on Schedule A thereto, Fox Broadcasting Company, Fox Broadcasting Sub, Inc., and Allen & Company Incorporated. ***10.2 Employment Assumption Agreement dated as of July 31, 1997 by and among Saban Entertainment, Inc., Fox Kids Worldwide, Inc. and Mel Woods. ***10.3 Employment Assumption Agreement dated as of July 31, 1997 by and among Fox Kids Worldwide, L.L.C., Fox Kids Worldwide, Inc. and Haim Saban. 10.4 Reserved. ***10.5 Form of Indemnification Agreement and Schedule of Indemnified Parties. ***10.6 Employment Agreement dated as of April 1, 1997 between Saban Entertainment, Inc. and William Josey. **10.7 Employment Agreement dated as of December 22, 1995 between Fox Kids Worldwide, L.L.C. and Haim Saban. ***10.8 Employment Agreement dated as of September 1, 1996 between Fox Kids Worldwide, Inc. and Shuki Levy; Stock Option Agreement dated as of June 1, 1994 between Saban Entertainment, Inc. and Shuki Levy, as amended by Amendment No. 1. ***10.9 Employment Agreement dated as of June 1, 1994 between Saban Entertainment, Inc. and Mel Woods, as amended by Amendment No. 1 to Employment Agreement dated as of September 26, 1996. 10.10 Reserved. **10.11 LLC Formation Agreement dated as of November 1, 1995 among Saban Entertainment, Inc., FCN Holding Company and Fox Broadcasting Company, Inc. ***10.12 Operating Agreement for Fox Kids Worldwide, L.L.C. dated as of December 22, 1995 by and among Saban Entertainment, Inc., FCN Holding, Inc. and Fox Broadcasting Company. **10.13 Amendment No. 1 to Operating Agreement dated as of September 26, 1996, by and among Saban Entertainment, Inc., FCN Holding, Inc. and Fox Broadcasting Company. ***10.14 Amendment No. 2 to Operating Agreement dated as of July 31, 1997 by and among Saban Entertainment, Inc., FCN Holding, Inc., Fox Broadcasting Company and Fox Kids Worldwide, Inc. **10.15 Asset Assignment Agreement dated as of December 22, 1995 by and between Fox Kids Worldwide, L.L.C., on the one hand, and Fox, Inc., Fox Broadcasting Company, Twentieth Century Fox Film Corporation, Fox Television Stations, Inc., and FCN Holding, Inc., on the other hand.+ **10.16 Management Agreement dated as of December 22, 1995 by and among Fox Kids Worldwide, L.L.C., Saban Entertainment, Inc. and FCNH Sub, Inc. ***10.17 Stock Ownership Agreement dated as of December 22, 1995 by and among Haim Saban, certain entities listed on Schedule 1.1(a) thereto and Fox Kids Worldwide, L.L.C. ***10.18 Amendment No. 1 to Stock Ownership Agreement dated as of September 26, 1996 by and among Haim Saban, certain entities listed on Schedule "A" thereto, Fox Broadcasting Sub, Inc., and Fox Broadcasting Company. 10.19 Home Video Rights Acquisition Agreement dated as of August 8, 1996 among Saban Entertainment, Inc., Ventura Film Distributors, B.V. and Twentieth Century Fox Home Entertainment, Inc.+ ***10.20 Form of Fox Broadcasting Company Station Affiliate Agreement.
EXHIBIT NO. DESCRIPTION ----------- ----------- ***10.21 Merchandising Rights Acquisition Agreement dated as of July 1, 1990 between Twentieth Century Fox Licensing and Merchandising, a unit of Ffox Inc. and Fox Children's Network, Inc.+ ***10.22 Indemnification Agreement dated as of December 22, 1995 between Fox Broadcasting Company and Fox Children's Network, Inc. ***10.23 Distribution Rights Acquisition Agreement dated as of September 1, 1990 between Twentieth Century Fox Film Corporation and Fox Children's Network, Inc.+ ***10.24 Administration Agreement dated as of February 7, 1990 between Fox Broadcasting Company and Fox Children's Network, Inc. ***10.25 Registration Agreement (the "Saban/Fox Registration Agreement") dated as of December 22, 1995 among Saban Entertainment, Inc., Haim Saban, certain entities listed on Schedule A thereto, Fox Broadcasting Company, Inc., and FCN Holding, Inc. ***10.26 Amendment No. 1 to Saban/Fox Registration Agreement dated as of September 27, 1996. ***10.27 Contribution and Exchange Agreement dated June 11, 1997 by and among Liberty Media Corporation, Liberty IFE, Inc. and Fox Kids Worldwide, Inc. ***10.28 Guarantee dated as of December 22, 1995 by The News Corporation Limited. ***10.29 First Amendment to 10960 Wilshire Boulevard Lease dated as of August 1, 1997. ***10.30 Guaranty of Lease by The News Corporation Limited and News Publishing Australia Limited in favor of Beacon Properties, L.P., dated as of August 1, 1997. 10.31 Second Amended and Restated Credit Agreement dated as of October 28, 1997 among FCN Holding, Inc., International Family Entertainment, Inc. and Saban Entertainment, Inc., as Borrowers, and Fox Kids Holdings, LLC, as Guarantor, and the initial lenders named therein, as Initial Lenders, and Citicorp U.S.A., Inc., as Administrative Agent, and Citicorp Securities, Inc. and Bank Boston, N.A., as Co-Arrangers.+ 10.32 Letter Amendment No. 1 to the Second Amended and Restated Credit Agreement dated as of November 18, 1997. ***10.33 Funding Agreement dated as of June 11, 1997 by and among The News Corporation Limited, News Publishing Australia Limited and Fox Kids Worldwide, Inc. ***10.34 Guaranty dated as of June 11, 1997 by The News Corporation Limited in favor of International Family Entertainment, Inc. ***10.35 Distribution Agreement dated as of August 21, 1992, as amended, between Saban International N.V. and Saban International Services, Inc. on the one hand and Toei Company Ltd.+ ***10.36 Memorandum of Agreement dated as of January 19, 1996 between Saban Merchandising, Inc. and Ventura Film Distributors, B.V. on the one hand and Bandai America Incorporated, on the other hand.+ 10.37 Reserved. ***10.38 10960 Wilshire Boulevard Office Lease dated as of July 17, 1995 between 10960 Property Corporation and Saban Entertainment, Inc. ***10.39 Production Facility Agreements dated as of June 7, 1994 and January 5, 1994 between Magic Movie Studios of Valencia, Ltd. and Saban Entertainment, Inc. ***10.40 Letter Agreement dated as of January 1, 1995 between Saban International, N.V. and Duveen Trading Ltd.
EXHIBIT NO. DESCRIPTION ----------- ----------- ***10.41 Barter Syndication Agreement dated as of January 5, 1996 between Saban Entertainment, Inc. and Fox Broadcasting Company, Inc. ***10.42 Letter Agreement dated as of September 26, 1996 but effective as of April 3, 1996 by and among Stanley S. Shuman, FCN Holding, Inc., and Allen & Company Incorporated, as amended by that certain Side Letter Agreement dated as of September 26, 1996 but effective as of April 3, 1996. ***10.43 First Amendment to the Contribution and Exchange Agreement dated as of August 1, 1997 by and among Liberty Media Corporation, Liberty IFE, Inc. and Fox Kids Worldwide, Inc. ***10.44 Agreement Re Registration Rights dated as of August 1, 1997 by and among Saban Entertainment, Inc., Haim Saban, certain entities listed on Schedule A to the Saban/Fox Registration Agreement, Fox Broadcasting Company, FCN Holding, Inc., Fox Kids Worldwide, Inc., Liberty Media Corporation and Liberty IFE, Inc. 10.45 Exchange Agreement dated August 1, 1997 among News Publishing Australia Limited, Liberty Media Corporation and Liberty IFE, Inc. ***10.46 Agreement Re Transfer of LLC Interests dated as of July 31, 1997 by and among Fox Kids Worldwide, Inc., Fox Kids Worldwide, L.L.C. and Fox Broadcasting Company. 10.47 Subordinated Note Agreement dated July 31, 1997 by and among Fox Broadcasting Company, as lender, Fox Kids Worldwide, Inc., as borrower, and Citicorp USA, Inc.; Subordinated Promissory Note dated July 31, 1997 made by Fox Kids Worldwide, Inc., as borrower, in favor of Fox Broadcasting Company, as lender; First Amendment to Subordinated Note Agreement dated September 4, 1997; Second Amendment to Subordinated Note Agreement dated October 28, 1997 and Subordinated Promissory Note dated October 28, 1997 made by Fox Kids Worldwide Inc., as borrower in favor of Fox Broadcasting Company, as lender. ***10.48 Subordinated Note dated August 29, 1997 between Fox Kids Worldwide, Inc., as borrower, and News America Holdings Incorporated, as lender, and Subordinated Note Agreement dated August 29, 1997 between Fox Kids Worldwide, Inc., as borrower, News America Holdings Incorporated, as lender, and Citicorp USA, Inc., and First Amendment to Subordinated Note Agreement dated October 28, 1997. 10.49 Amendment to Affiliation Agreement dated June 11, 1997, between International Family Entertainment, Inc. and Satellite Services, Inc.+ 10.50 Letter of Amendment dated as of May 16, 1996, amending the International Family Entertainment, Inc. Family Channel Affiliation Agreement dated as of December 28, 1989, between Satellite Services, Inc. and International Family Entertainment, Inc.+ 10.51 Program Time Agreement dated as of January 5, 1990, between The Christian Broadcasting Network, Inc. and International Family Entertainment, Inc. and Amendment No. 1 to Program Time Agreement dated as of June 11, 1997. 10.52 International Family Entertainment, Inc. Family Channel Affiliation Agreement, dated as of December 28, 1989, between Satellite Services, Inc. and International Family Entertainment, Inc.+ 10.53 Amendment, dated as of January 1, 1994, amending the International Family Entertainment, Inc. Family Channel Affiliation Agreement, dated as of December 28, 1989, between Satellite Services, Inc. and International Family Entertainment Inc. ***10.54 Registration Rights Agreement dated August 1, 1997 by and among Fox Kids Worldwide, Inc., Liberty Media Corporation and Liberty IFE, Inc. 10.55 Galaxy V Transponder Purchase Agreement, dated as of January 23, 1992, between Hughes Communications Galaxy, Inc. and International Family Entertainment, Inc.+ 10.56 GE C-3/C-4 Satellite Transponder Sales Agreement dated as of July 7, 1989 between GE American Communications and The Christian Broadcasting Network Inc.+ 10.57 C-3/C-4 Satellite Transponder Sales Agreement Amendment Number One dated as of December 15, 1989, between GE American Communications, Inc. and The Christian Broadcasting Network, Inc. 10.58 C3/C4 Satellite Transponder Sales Agreement Amendment Number Two dated as of December 15, 1989, between GE American Communications, Inc. and The Christian Broadcasting Network, Inc.+
EXHIBIT NO. DESCRIPTION ----------- ----------- 10.59 Letter of Amendment dated September 30, 1991, re: C-3/C-4 Satellite Transponder Sales Agreement by and between GE American Communications, Inc. and The Christian Broadcasting Network, Inc. as predecessor in interest to International Family Entertainment, Inc. 10.60 C3/C4 Satellite Transponder Sales Agreement Amendment Number Four dated as of November 24, 1992 by and between GE American Communications, Inc. and International Family Entertainment, Inc. ***12.1 Ratio of Earnings to Fixed Charges. ***21.1 Subsidiaries of the Registrant. *23.1 Consent of Squadron, Ellenoff, Plesent & Sheinfeld, LLP (included in Exhibit 5.1 hereto). 23.2 Consent of Ernst & Young LLP regarding Saban Entertainment, Inc., regarding FCN Holding, Inc., and regarding FCN Holding, Inc., Saban Entertainment, Inc., and Fox Kids Worldwide, L.L.C. 23.3 Consent of KPMG Peat Marwick LLP regarding International Family Entertainment, Inc. **24.1 Power of Attorney. ***24.2 Power of Attorney of Lawrence Jacobson dated January 22, 1998. ***25.1 Statement of Eligibility of The Bank of New York, as Trustee. ***27.1 Financial Data Schedule. *99.1 Form of Letter of Transmittal. *99.2 Form of Note of Guaranteed Delivery. *99.3 Form of Exchange Agent Agreement.
- -------- * To be supplied by amendment. ** Previously filed as an exhibit to the Registrant's Form S-1 on September 27, 1996 *** Previously filed as an exhibit to the Registrant's Amendment No. 1 to Form S-1 on January 26, 1998. + Portions of exhibits deleted and filed separately with the Securities and Exchange Commission pursuant to a request for confidentiality. (1) Upon request, the Registrant will furnish supplementally to the Securities and Exchange Commission a copy of omitted schedules. EX-10.19 2 HOME VIDEO RIGHTS ACQUISITION AGREEMENT Portions of this exhibit have been deleted and filed separately with the Securities and Exchange Commission pursuant to a request for confidential treatment. The redacted portions are identified by brackets with the character "*" indicating deleted information. [*] CONFIDENTIAL TREATMENT REQUESTED EXHIBIT 10.19 HOME VIDEO RIGHTS ACQUISITION AGREEMENT (DOMESTIC) DATED AS OF AUGUST 8, 1996 1. PARTIES: ------- (a) Twentieth Century Fox Home Entertainment, Inc. ("FOX"), on the one hand; and (b) Saban Entertainment, Inc. ("SEI"), and Ventura Film Distributors, B.V. ("VENTURA") (collectively, "SABAN"), on the other hand. 2. CONDITION PRECEDENT: This Home Video Rights Acquisition Agreement ------------------- ("Agreement") is subject in its entirety to early termination of the Agreement dated as of March 1, 1994 between Saban and WarnerVision Entertainment, Inc. ("WARNER") as successor to A* Vision ("WARNER AGREEMENT"), pursuant to the following: (a) Warner Effective Date: The effective date of the early termination of --------------------- the Warner Agreement ("WARNER EFFECTIVE DATE") shall be on or prior to September 11, 1996. (b) Buy-Out Contributions: The monies required to be paid to Warner as --------------------- consideration for early termination of the Warner Agreement ("BUY-OUT PRICE") shall consist of Fox's Buy-Out Contribution and Saban's Buy-Out Contribution. The amount of Fox's contribution to the Buy-Out Price as consideration for the exclusive grant of Distribution Rights hereunder ("FOX'S BUY-OUT CONTRIBUTION") shall be [*] The amount of Saban's contribution to the Buy-Out Price ("SABAN'S BUY-OUT CONTRIBUTION") shall equal the difference between the Buy-Out Price and Fox's Buy-Out Contribution, and shall be at least [*] Fox shall loan [*] to Saban for its use in paying Saban's Buy-Out Contribution ("BUY-OUT LOAN"). (c) Timing of Payment: Saban shall be solely responsible for paying the ----------------- Buy-Out Price to Warner. Provided Saban negotiates termination of the Warner Agreement in compliance with Paragraph 2.(a), and provided Saban first pays the full amount of the Buy-Out Price to Warner, Fox shall pay Fox's Buy-Out Contribution to Saban and the Buy-Out Loan within 10 days following signature of this Agreement. (d) Failure to Early Terminate: If the Warner Effective Date does not -------------------------- occur on or prior to September 11, 1996, any monies theretofore paid by Fox to Saban, if any, shall be immediately refunded, this Agreement shall immediately terminate and neither Fox nor Saban shall have any further obligation to the other hereunder. 3. PROGRAMS: "PROGRAMS" means collectively, Saban Programs, FCN Programs, and -------- Marvel Programs, pursuant to the following: (a) "SABAN PROGRAMS" means the Television Series "Sweet Valley High", and all Television Motion Pictures originally produced and broadcast primarily for an audience of children 12 years of age and younger, as to which any right of Home Video Distribution in all or any part of the Distribution Territory at any time during the Output Term is or becomes owned or controlled by SEI or Ventura, including any and all versions of such Television Motion Pictures and "making of" or other promotional programs produced in connection with such Television Motion Pictures (if available), excluding only the following: (i) Any Theatrical Motion Picture, Movie-for-Television, or Television Mini-Series; and (ii) The Television Series currently entitled "X-Men" and any sequels thereto, prior to the expiration or any early termination of the agreement dated June 28, 1994 between SEI, Saban International N.V. ("SINV") and Polygram Video International Limited. The date of expiration or early termination of such agreement shall be referred to as the "X-MEN EFFECTIVE DATE". (b) "FCN PROGRAMS" means all Television Motion Pictures as to which any right of Home Video Distribution in all or any part of the Distribution Territory at any time during the Output Term is or becomes owned or controlled by Fox Children's Network, Inc. ("FCN") or any successor, including any and all versions of such Television Motion Pictures and "making of" or other promotional programs produced in connection with such Television Motion Pictures (if available), excluding only any Theatrical Motion Picture, Movie-for-Television, or Television Mini-Series. (c) "MARVEL PROGRAMS" means, collectively, all New Marvel Programs and Old Marvel Programs, pursuant to the following: (i) "NEW MARVEL PROGRAMS" means all Television Motion Pictures produced or to be produced by Saban pursuant to the agreement dated as of June 24, 1996 among Marvel Characters Group, Inc. ("MARVEL"), Fox Kids Worldwide LLC ("FKW"), and SINV, excluding only any Theatrical Motion Picture, Movie-for-Television, or Television Mini-Series; and (ii) "OLD MARVEL PROGRAMS" means all Television Motion Pictures, if any, as to which any right of Home Video Distribution in all or any part of the Distribution Territory at any time during the Output Term is or becomes owned or controlled by Marvel and subsequently becomes owned or controlled by Saban or FKW (or any successor of either or both), including any and all versions of such Television Motion Pictures and "making of" or other promotional programs produced in connection with such Television Motion Pictures (if available), and excluding only New Marvel Programs and any Theatrical Motion Picture, Movie-for-Television, or Television Mini-Series. The date, if any, that Saban or FKW (or any successor of either or both) acquires any right of Home Video Distribution of any Old Marvel Program shall be referred to as the "OLD MARVEL EFFECTIVE DATE". A list identifying the titles of substantially every Program existing as of the Warner Effective Date to which SEI and Ventura owns or controls the right of Home Video Distribution of such Program in one or more Territories of the Distribution Territory, and the expiration date of such right(s), is attached hereto as EXHIBIT "A". Within 30 days following signature of this Agreement by Saban, and thereafter no less frequently than quarterly during the Output Term, Saban shall supply to Fox updated versions of Exhibit "A", containing additions, deletions and/or corrections to the immediately preceding version of Exhibit "A", as applicable. 4. DISTRIBUTION RIGHTS: Fox shall have the right to exercise the U.S. Rights ------------------- and the Canadian Rights (collectively, "DISTRIBUTION RIGHTS") pursuant to the following: (a) U.S. Rights: SEI hereby grants and licenses to Fox the sole and ----------- exclusive right and license under copyright and otherwise to exercise all rights of Home Video Distribution and Home Video Exhibition with respect to English-language and Spanish-language versions of the Programs throughout the U.S. Territory, and all additional rights in connection with Home Video Distribution and -2- Home Video Exhibition of such Programs and marketing, advertising, and promotion thereof as more fully described in the Standard Terms attached hereto (collectively, "U.S. RIGHTS"). SEI has not and will not during the Distribution Term sell, assign, license or grant to any Party other than Fox, encumber, or utilize the U.S. Rights to any Program. (b) Canadian Rights: Ventura hereby grants to Fox the sole and exclusive --------------- right under copyright and otherwise to exercise all rights of Home Video Distribution and Home Video Exhibition with respect to English-language versions of the Programs throughout Canada, and all additional rights in connection with Home Video Distribution and Home Video Exhibition of such Programs and marketing, advertising, and promotion thereof as more fully described in the Standard Terms attached hereto (collectively, "CANADIAN RIGHTS"). Ventura has not and will not during the Distribution Term sell, assign, license or grant to any Party other than Fox, encumber, or utilize the Canadian Rights to any Program. 5. RESERVED RIGHTS: Saban reserves all rights not expressly granted herein, --------------- including, without limitation, all rights of Theatrical Distribution and Theatrical Exhibition of the Programs, Television Distribution and Television Exhibition of the Programs, Non-Theatrical Distribution and Non-Theatrical Exhibition of the Programs, and all Interactive Media Merchandising Rights with respect to the Programs. 6. DISTRIBUTION TERRITORY: The "DISTRIBUTION TERRITORY" shall consist of the ---------------------- U.S. Territory and the Canadian Territory. The "U.S. TERRITORY" shall mean the United States, its territories and possessions, but excluding Puerto Rico. The "Canadian Territory" shall mean the Dominion of Canada, and its territories and possessions. 7. OUTPUT TERM/DISTRIBUTION TERM: The period during which Programs are ----------------------------- subject to this Agreement ("OUTPUT TERM") shall commence as follows: (a) for all Programs except Old Marvel Programs and "X-Men", on the Warner Effective Date, (b) for Old Marvel Programs, on the Old Marvel Effective Date, and (c) for "X- Men" on the X-Men Effective Date, and, for all Programs, shall expire seven (7) years after the Warner Effective Date. The period during which Fox may exercise the Distribution Rights to the Programs ("DISTRIBUTION TERM") shall be co- extensive with the Output Term, except that, for each Program released during the last two years of the Output Term, Fox may continue to exercise the Distribution Rights until nine (9) years after the Warner Effective Date. Each year of the Output Term, or Distribution Term, as applicable, may be referred to as a "CONTRACT YEAR". 8. RELEASE AVAILABILITY REQUIREMENTS/DELIVERY/VIDEO AVAILABILITY: ------------------------------------------------------------- (a) RELEASE AVAILABILITY REQUIREMENTS: During each Contract Year, Saban --------------------------------- shall make available for release by Fox at least six (6) Programs mutually acceptable to Fox and Saban, at least two of which shall not have been previously released for Home Video Distribution in any Territory of the Distribution Territory ("PROGRAM MINIMUM"). Each Program eligible to satisfy the Program Minimum shall be available for release throughout the Distribution Territory and for the entirety of the applicable portion of the Distribution Term. In addition to the Program Minimum, additional Programs may be released by mutual agreement. (b) DELIVERY: For each Program mutually approved for release pursuant to -------- Paragraph 12.(a)(ii), Saban shall complete Delivery to Fox the earlier of (i) 30 days after Fox's request for such Delivery, or (ii) no later than 90 days before the first Initial Release Date for such Program in any Territory of the Distribution Territory. The Programs shall be delivered in accordance with the Standard Terms and Conditions and Saban shall bear all costs of Delivery. -3- [*] CONFIDENTIAL TREATMENT REQUESTED (c) VIDEO AVAILABILITY: Each Program made available for release by Fox ------------------ pursuant to Paragraph 8.(a) shall be available for Home Video Distribution by Fox in every Territory of the Distribution Territory for which Saban has the right of Home Video Distribution. For each Program created following the date hereof, Saban shall notify Fox in writing prior to any grant by Saban of any holdback on home video distribution of such Program in any Territory of the Distribution Territory. 9. PAYMENTS TO SABAN: ----------------- (a) SABAN'S SHARE: In consideration of the grant of the Distribution ------------- Rights and Saban's representations and warranties herein, and subject to Saban's compliance with this Agreement (including compliance with the Standard Terms and Conditions and prompt completion of Delivery of all Programs to be released hereunder), Fox shall remit to Saban [*] as "SABAN'S SHARE". [*] if any, after Fox deducts, on a continuing and cumulative basis based on financial data determined, recorded and computed as of the end of the particular Statement Period for which a periodic Accounting Statement is being rendered, the aggregate of the following items, in the order of priority set forth below: (i) Home Video Distribution Expenses; (ii) [*] ("INTEREST RATE"); and (iii) The Buy-Out Loan. (b) Participation Terminology: ------------------------- (i) "FOX ENTITY": Fox, a Subsidiary or an Affiliate. ------------ (ii) "FOX HOME VIDEO DISTRIBUTOR": A Fox Entity which is a Home Video ---------------------------- Distributor . (iii) "GROSS RECEIPTS": [*] ("PROMOTIONAL CASSETTES"). ---------------- (iv) "HOME VIDEO DISTRIBUTION EXPENSES": All Manufacturing Costs, ---------------------------------- Sales and Marketing Costs and Miscellaneous Distribution Costs which are paid, advanced, incurred or accrued by Fox (including its Subsidiaries and Affiliates) by reason of, in connection with, or which are allocable to the Home Video Distribution of Cassettes of the Programs, pursuant to the following: (A) "MANUFACTURING COSTS": For all Cassettes of Programs --------------------- actually shipped, all third-party costs of manufacture, packaging and shipping of Cassettes of the Programs (reflecting volume discounts/rebates), including costs of re-editing, dubbing, subtitling, closed captioning and descriptive services (if any), costs of anti-piracy devices and anti-copying protection, mastering, raw materials costs including -4- [*] CONFIDENTIAL TREATMENT REQUESTED tape, disc, shell, cartridge, box, labels, sleeves, containers, stickers, duplication, packaging materials and services including plastic-wrapping, "pick, pack and ship" and other physical distribution and handling services, freight, inventory management services, warehousing, insurance, storage, degaussing and disposal; (B) "SALES AND MARKETING COSTS": All third-party costs in --------------------------- connection with the selling, advertising and promotion of Cassettes of the Programs, including design, production and manufacture of marketing and advertising materials, press kits, trailers, screening Cassettes, media purchases, mailers, promotions, fulfillment, advertising funding and rebates including "co-op", sales rebates, display and point-of-purchase advertising, advertising agency and public relations fees, consultant fees, sales incentive programs, an allocable portion of the dues and assessments paid with respect to industry anti- piracy programs relating to Cassettes, research, trade show and entertainment costs, commercial fie-ins and sales commissions; and (C) "MISCELLANEOUS DISTRIBUTION COSTS": All amounts (however ---------------------------------- denominated) remitted by or on behalf of Fox to taxing authorities as sales, use, excise, VAT, commodity, remittance, withholding and comparable or similar taxes (collectively, "VIDEO-RELATED TAXES"); and all costs and expenses paid, advanced, incurred or accrued in connection with the Home Video Distribution of Cassettes of the Programs, excluding Manufacturing Costs and Sales and Marketing Costs but including the conversion of funds costs, collection costs, and costs incurred with respect to licensing the right to engage in Home Video Distribution of Cassettes of the Programs. (v) "HOME VIDEO DISTRIBUTOR": A Party licensed to perform Home Video ------------------------ Distribution by a Fox Entity and which engages in the sale or rental of Cassettes embodying Motion Pictures directly to wholesale dealers and/or retail dealers and outlets. The term Home Video Distributor shall not include a wholesale or retail dealer or outlet which buys or leases Cassettes embodying Motion Pictures from a Party which is also a Home Video Distributor. (c) Reasonable Reserves: ------------------- (i) Fox may establish and maintain reasonable reserves for anticipated costs, charges and/or revaluations, including bad debts, returns, defectives, freight, obsolescence, Video-Related Taxes, co-op advertising and market development funding. The amount of such reserves as a percentage of Gross Receipts shall not exceed the maximum amount provided for in Fox's then-current accounting practices and policies as they apply to Fox's own (or its affiliates') similar product. [*] Bad debts shall not in any event be deducted more than once. (ii Any reserves taken hereunder shall be liquidated periodically, pursuant to Fox's then-current accounting practices and policies. Fox represents that, pursuant to Fox's accounting practices and policies as of the date hereof, reserves are liquidated annually. (d) Accounting By Fox: With respect to each Program released hereunder, ----------------- Fox shall account to Saban with respect to Gross Receipts, Net Receipts and Saban's Share as follows: -5- [*] CONFIDENTIAL TREATMENT REQUESTED (i) First Accounting Statement and Payment: Fox shall deliver an -------------------------------------- initial accounting statement, in a form determined by Fox, which shows in summary form Gross Receipts, permitted deductions therefrom, and Net Receipts, if any, ("ACCOUNTING STATEMENT") and shall pay Saban's Share of Net Receipts, if any, no less than 45 days after the end of the calendar quarter in which the Initial Release Date of such Program in the Distribution Territory occurs. (ii) Subsequent Accounting Statements and Payments: As to all --------------------------------------------- subsequent Accounting Statements and payments relating to such Program other than those set forth in Paragraph 9.(d)(i), Fox shall deliver a Accounting Statement and pay any balance of Saban's Share of Net Receipts, if any, 45 days after the end of each calendar quarter in which Gross Receipts are determined to have been collected for, or any permitted deductions are taken with respect to, such Program. 10. CROSS-COLLATERALIZATION/SHORTFALLS: The Programs are cross-collateralized, ---------------------------------- and Fox may recoup Home Video Distribution Expenses for any Program and the Buy- Out Loan from Gross Receipts from all Programs. [*] 11. THIRD PARTY PARTICIPATIONS/GUILD PAYMENTS: With respect to each of the ----------------------------------------- Programs, as between Saban and Fox, Saban shall be solely responsible to account to and/or make any payments to third Party participants in the proceeds of the Program derived from the exploitation of the Distribution Rights in the Distribution Territory. With respect to each of the Programs, as between Saban and Fox, Saban shall be solely responsible for and shall pay all Guild Payments with respect to the Program. If, notwithstanding the foregoing sentence, Fox is compelled to pay any Guild Payments with respect to a Program pursuant to a collective bargaining agreement or by contractual agreement, Fox shall recoup such Guild Payments from any amounts payable to Saban and Saban shall, upon Fox's request, pay Fox an amount equal to the balance of Guild Payments paid by Fox which have not been so recouped. 12. DISTRIBUTION AND EXPLOITATION: ----------------------------- (a) Fox's Obligations to Saban: -------------------------- (i) Limitations on Home Video Distribution Expenses: Home Video ----------------------------------------------- Distribution Expenses shall not include any allocation of costs of Fox's overhead (including rent and employee salaries for marketing, sales, credit evaluation and manufacturing supervision services) without Saban's advance written permission. All costs and expenses paid or incurred by Fox or a Fox Home Video Distributor in transactions with Fox's affiliates shall be reasonable and customary and shall not exceed the amount generally paid (or which would be paid) by unrelated third Parties for similar goods and services. (ii) Release Decisions/Release Dates: Fox and Saban may each propose ------------------------------- Programs to be released hereunder, but Saban shall have no obligation to make any particular Program available for release hereunder. After mutual consultation, Fox shall submit release proposals (including proposed Initial Release Dates) to Saban. Saban shall approve or disapprove such release proposal within 10 business days following submission to Saban. In the event Saban fails to approve or disapprove such release proposal within such period, the release proposal -6- shall be deemed approved. Approvals hereunder shall not be unreasonably withheld. Any Program release of which is approved by Saban hereunder shall be referred to as an "APPROVED PROGRAM". (iii) Obligations to Third Parties: For each Program Saban makes ---------------------------- available for release hereunder, Saban shall notify Fox in writing at the time such Program is made available to Fox of all contractual or other legal limitations on Home Video Distribution and/or Home Video Exhibition of such Program ("PROGRAM RESTRICTIONS"). Provided Saban complies with its obligations under the foregoing sentence, if such Program is thereafter released by Fox hereunder, Fox shall use reasonable efforts to comply with all such Program Restrictions. (iv) Artwork: For each Approved Program to be released by Fox ------- hereunder, Fox shall submit for Saban's prior approval all proposed artwork for Cassettes of the Program. If Saban does not approve or disapprove such packaging within three (3) business days of submission to Saban, the packaging shall be deemed approved. Approvals hereunder shall not be unreasonably withheld. (v) Marketing Plans: Reasonably in advance of the Initial Release --------------- Date for any Approved Program, Fox shall submit to Saban a proposed marketing plan setting forth budgeted estimates for certain categories of Sales and Marketing Expenses for the Distribution Territory ("MARKETING PLAN") substantially in the form then-used by Fox. Saban shall have the right to approve the proposed Marketing Plan submitted by Fox. Saban shall approve or disapprove such proposed Marketing Plan within ten (10) business days of its submission to Saban. In the event Saban fails to approve or disapprove such proposed Marketing Plan within such period, the Marketing Plan shall be deemed approved. Approvals hereunder shall not be unreasonably withheld. If Saban timely notifies Fox of its disapproval, Fox shall use reasonable commercial efforts to modify such proposed Marketing Plan to obtain Saban's approval; provided, however, that in the event Saban declines to give approval, (a) Fox shall not release the Program, and (b) the Program shall not be included in the Program Minimum. Fox shall in any event deduct its costs pursuant to Paragraph 9. (vi) Use of Logos: ------------ (A) All Programs: No later than a date reasonably in advance of ------------ the Initial Release Date for the first Program to be released hereunder, Fox shall submit to Saban a proposed new logo for use on all packaging of Cassettes of the Programs and in all advertising of such Cassettes by Fox or under Fox's control. Saban shall approve or disapprove such logo within ten (10) business days of submission to Saban. In the event Saban fails to approve or disapprove such logo within such period, such logo shall be deemed approved. Approvals hereunder shall not be unreasonably withheld. (B) Saban Programs: Fox shall include Saban's logos (including -------------- without limitation a "Fox Kids" logo) on the back of the packaging of Cassettes of the Saban Programs, in equal prominence to Fox's logos; provided, however, that when Saban's name or logo forms a part of the title of a Saban Program, such name or logo, as applicable, shall be used as part of such title. (C) FCN Programs: Fox shall include FCN's logos on the back of ------------ the packaging of Cassettes of the FCN Programs, in equal prominence to Fox's logos; provided, -7- [*] CONFIDENTIAL TREATMENT REQUESTED however, that when FCN's name or logo forms a part of the title of a FCN Program, such name or logo, as applicable, shall be used as part of such title. (D) Marvel Programs: Fox shall include Marvel's logos on the --------------- back of the packaging of Cassettes of the Marvel Programs, in equal prominence to Fox's logos, provided, however, that when Marvel's name or logo forms a part of the title of a Marvel Program, such name or logo, as applicable, shall be used as part of such title. (vii) Home Video Distribution: Fox agrees to consult in good faith ----------------------- with Saban concerning the Home Video Distribution of Cassettes of the Programs. Fox agrees that Cassettes of the Programs shall be distributed in a commercially reasonable and non-discriminatory manner which is no less favorable to Saban than the manner in which Fox distributes Cassettes of its own (or its affiliates') similar product. (b) Fox's Control: Except as provided in Paragraph 12.(a), Fox shall have ------------- complete, exclusive and unqualified discretion and control as to the time, manner (e.g., whether direct or through intermediaries) and trade terms of Home Video Distribution of the Programs, in accordance with such policies, terms and conditions and through such Parties as Fox in its sole business judgment may determine proper or expedient. Fox makes no express or implied representation, warranty, guaranty or agreement that any of the Programs will be released or distributed, as to the manner or extent of any distribution or other exploitation of any such Program, nor the amount of money to be derived therefrom or expended in connection therewith, nor the performance by any subsidiary and/or affiliated entity of Fox, or any subdistributor or licensee in connection with the distribution or other exploitation of the Programs. (c) Saban's Obligations to Fox: In addition to its other obligations under -------------------------- this Agreement, Saban shall assist Fox in obtaining (and provide all documentation required to obtain) such licenses and permits as may be necessary or desirable for the importation, and distribution of the Programs in the Distribution Territory. 13. EXPIRATION / TERMINATION PROCEDURES: All Motion Picture Copies of the ----------------------------------- Programs made by or for Fox shall be Fox's property. Upon expiration or any earlier termination of the Distribution Term for a Program, all Delivery items, Motion Picture Copies, trailers, advertising materials and accessories with regard to such Program which were delivered to Fox by Saban and which are existing and within Fox's control at the time of such expiration or earlier termination, shall be returned or sent to Saban to such place as Saban shall designate (the cost to be treated as a Manufacturing Cost hereunder). All Cassettes of such Program in Fox's inventory at such time shall be degaussed (the cost thereof to be treated as an additional Manufacturing Cost and the salvage value thereof to be treated as a reduction in Manufacturing Cost hereunder). [*] 14. REPRESENTATIONS AND WARRANTIES: ------------------------------ (a) Fox Representations and Warranties: Fox represents, warrants and ---------------------------------- agrees that (i) Fox has the authority to enter into this Agreement and has taken all corporate and other action necessary to duly and validly authorize its signature and the performance of this Agreement, (ii) there are no existing or threatened claims against it which would prevent Fox from performing under this Agreement, (iii) Fox shall not exercise the Distribution Rights outside the Distribution Territory without Saban's written permission, which Saban may grant or withhold in its sole discretion, (iv) Fox shall -8- not exercise the Distribution Rights following expiration of the Distribution Term without Saban's written permission, which Saban may grant or withhold in its sole discretion, and (v) Fox shall not exercise any rights with respect to the Programs other than the Distribution Rights without Saban's written permission, which Saban may grant or withhold in its sole discretion. (b) Saban Representations and Warranties: ------------------------------------ (i) SEI represents, warrants end agrees as follows: (A) Authority/Action: SEI has the authority to enter into this ---------------- Agreement and has taken all corporate and other action necessary to duly and validly authorize its signature and the performance of this Agreement. (B) Rights -- All Programs: Exhibit "A" is complete and accurate ---------------------- in all material respects, and each updated version of Exhibit "A", as and when delivered to Fox pursuant to Paragraph 3., shall be complete and accurate in all material respects. (C) Rights/Payments/Quality -- Released Programs: For each -------------------------------------------- Program released in the U.S. Territory hereunder. SEI has and shall continue to have the absolute and exclusive right during the Distribution Term to grant to and vest in Fox all of the U.S. Rights, and that all of the U.S. Rights shall be free and clear of any and all restrictions, claims, liens, encumbrances, impairments or defects of any nature which would impair or interfere with the exercise by Fox of the U.S. Rights during the Distribution Term. SEI further represents, warrants and agrees that SEI has not and will not during the Distribution Term sell, assign, license, grant, encumber, utilize the Program or Cassettes thereof or any of the literary or musical properties used therein in any way that may adversely affect or impair such U.S. Rights, and that none of the U.S. Rights have been sold, assigned, licensed or granted to any third Party. (D) No Infringement: For each Program released in the U.S. --------------- Territory hereunder, the execution of this Agreement, the content of such Program, and the exercise by Fox of any of the U.S. Rights will not violate or infringe any rights of any Party. (E) Valid Copyright: For each Program released in the U.S. --------------- Territory hereunder, the copyright in the Program and in all literary, dramatic and musical material upon which it is based or which is contained in the Program will be valid and subsisting during the Distribution Term in the United States, and no part thereof is in the public domain. (F) Litigation: For each Program released in the U.S. Territory ---------- hereunder, there is no litigation, proceeding or claim pending or threatened against SEI or other Party which might materially adversely affect SEI's rights in and to the Program, any copyrights pertaining thereto or the U.S. Rights granted to Fox hereunder. (ii) Ventura represents, warrants and agrees as follows: (A) Authority/Action: Ventura has the authority to enter into ---------------- this Agreement and has taken all corporate and other action necessary to duly and validly authorize its -9- signature and the performance of this Agreement. (B) Rights -- All Programs: Exhibit "A" is complete and accurate ---------------------- in all material respects, and each updated version of Exhibit "A", as and when delivered to Fox pursuant to Paragraph 3., shall be complete and accurate in all material respects. (C) Rights/Payments/Quality -- Released Programs: For each -------------------------------------------- Program released in the Canadian Territory hereunder, Ventura has and shall continue to have the absolute and exclusive right during the Distribution Term to grant to and vest in Fox all of the Canadian Rights, and that all of the Canadian Rights shall be free and clear of any and all restrictions, claims, liens, encumbrances, impairments or defects of any nature which would impair or interfere with the exercise by Fox of the Canadian Rights during the Distribution Term. Ventura further represents, warrants and agrees that Ventura has not and will not during the Distribution Term sell, assign, license, grant, encumber, utilize the Program or Cassettes thereof or any of the literary or musical properties used therein in any way that may adversely affect or impair such Canadian Rights, and that none of the U.S. Rights have been sold, assigned, licensed or granted to any third Party. (D) No Infringement: For each Program released in the Canadian --------------- Territory hereunder, the execution of this Agreement, the content of the Program, and the exercise by Fox of any of the Canadian Rights will not violate or infringe any rights of any Party. (E) Valid Copyright: For each Program released in the Canadian --------------- Territory hereunder, the copyright in the Program and in all literary, dramatic and musical material upon which it is based or which is contained in the Program will be valid and subsisting during the Distribution Term in Canada, and no part thereof is in the public domain. (F) Litigation: For each Program released in the Canadian ---------- Territory hereunder, there is no litigation, proceeding or claim pending or threatened against Ventura or other Party which might materially adversely affect Ventura's rights in and to the Program, any copyrights pertaining thereto or the Canadian Rights granted to Fox hereunder. 15. GUARANTY: In order to induce Fox to enter into this Agreement, and as a -------- material obligation hereunder, SEI shall (a) guarantee the performance of Ventura's obligations under this Agreement and any amendments thereto, without recourse to Ventura; and (b) concurrently with Ventura's signature of the Agreement, sign a guaranty agreement which is in a form acceptable to Fox in its sole discretion ("GUARANTY"). The Guaranty required under this Paragraph 15 shall commence as of the date hereof and shall continue in full force and effect until 6 months after the end of the Distribution Term. SEI's failure to deliver any Guaranty in compliance with this Paragraph 15 or any subsequent lapse, cancellation, termination or other failure of any Guaranty shall be a material breach of the Agreement. 16. INDEMNITIES: ----------- (a) By Fox: Fox shall indemnify and hold harmless Saban, its parents, ------ subsidiary and affiliated entities, successors, officers, directors, shareholders, employees and agents, from any and all demands, actions, claims, or proceedings and from any and all damages, liabilities, costs, losses and -10- expenses (including reasonable attorneys' fees and expenses) (collectively, "CLAIMS") relating to or arising out of any violation or alleged violation of any of the warranties, representations or agreements made by Fox or Fox's errors or omissions in the distribution of Cassettes of the Programs hereunder. (b) By Saban: Saban shall indemnify and hold harmless Fox, its parents, -------- subsidiary and affiliated entities, successors, officers, directors, shareholders, employees and agents, from and against any and all Claims relating to or arising out of (i) the Warner Agreement, including termination thereof, (ii any violation of any of the warranties, representations or agreements made by Saban, (ii the content of or any error or omission in any Program released hereunder, or in any material or information furnished by Saban, (iv any failure of Saban to furnish such material or information in a timely manner, (v) any Claim by a third Party, claiming through Saban or its predecessors or grantors, to participate in the proceeds of a Program derived from the exploitation of the Distribution Rights in the Distribution Territory, (vi any Claim by a third Party with respect to Guild Payments, or (vi any Claim arising from a violation of law by Saban. Fox shall have the right to deduct all amounts paid or incurred by Fox with respect to Claims from sums accruing to Saban. 17. NOTICES/DESIGNATION OF AGENT: ---------------------------- (a) To Fox: All notices from Saban to Fox shall be given in writing by ------ mail (postage prepaid), messenger or telecopier (and if sent by telecopier, such notice shall be concurrently sent by mail) addressed as indicated below. The earlier of: (i) actual receipt; (ii 3 business days after the date of mailing; or (ii the date of telecopying shall be deemed to be the date of service. Mail: P.O. Box 900 Beverly Hills, California 90213 Attention: Legal Department Messenger: 2121 Avenue of the Stars, Suite 1300 Los Angeles, California 90067 Attention: Legal Department Telecopier: (310) 369-4739 Telephone: (310) 369-3022 (b) To Saban: All notices from Fox to Saban may be given in writing by -------- mail (postage prepaid) or messenger or addressed as indicated below. The earlier of (i) actual receipt; (ii 3 business days after the date of mailing; or (ii the date of telecopying shall be deemed to be the date of service. Mail and 10960 Wilshire Boulevard Messenger: Los Angeles, California Attention: General Counsel Telecopier: (310) 235-5102 Telephone: (310) 235-5100 (c) SERVICE OF PROCESS: ------------------ (i) Fox: Fox designates and appoints Mary Anne Harrison, at 10201 --- West Pico Boulevard, Los Angeles, California 90035, as its agent to accept service of process in California, or such other person as Fox may designate and appoint to act as its agent. -11- (ii) SEI: SEI hereby appoints SEI's General Counsel to accept service --- of process in California on its behalf. If no person is validly appointed, or if for any reason said person and/or address may not be validly served, then SEI hereby appoints the Secretary of State of California to accept service of process on its behalf. (iii) Ventura: Ventura hereby appoints Matthew Krane, Esq., 1451 ------- North Kings Road, Los Angeles, California 90069, to accept service of process in California on its behalf. If no person is validly appointed, or if for any reason said person and/or address may not be validly served, then Ventura hereby appoints the Secretary of State of California to accept service of process on its behalf. 18. ENTIRE AGREEMENT: This Home Video Rights Acquisition Agreement ("MAIN ---------------- AGREEMENT"), together with: (a) the Standard Terms and Conditions -- Home Video Rights Acquisition Agreement ("STANDARD TERMS"), attached hereto; (b) Exhibit "A", a list of Saban's Rights, (c) Exhibit "B", the Delivery Requirements, with schedule "B-1" thereto; (d) Exhibit "C", the Form of Laboratory Access Letter; (e) Exhibit "D-1", the Form of Exclusive License (SEI); and (f) Exhibit "D-2", the Form of Exclusive Grant of Rights (Ventura); embody the entire agreement ("HOME VIDEO RIGHTS ACQUISITION AGREEMENT" or "AGREEMENT") between Fox and Saban as to the subject matter hereof, and supersede all previous agreements, warranties or representations, oral or written, which may have been made between Fox and Saban as to the subject matter hereof. By signing in the spaces provided below, Fox and Saban accept and agree to all of the terms and conditions of this Agreement. TWENTIETH CENTURY FOX SABAN ENTERTAINMENT, INC. HOME ENTERTAINMENT, INC. ("FOX") /S/ /S/ --------------------------------- --------------------------- By: LAURA COOK By: MEL WOODS --------------------------------- --------------------------- Its: Its: PRESIDENT and Laura Cook Senior Vice President VENTURA FILM DISTRIBUTORS, B.V. Legal and Business Affairs (COLLECTIVELY, "SABAN") Twentieth Century Fox Home Entertainment, Inc. /S/ --------------------------- By: HECTOR GROB --------------------------- Its: ATTORNEY-IN-FACT -12- STANDARD TERMS AND CONDITIONS -- HOME VIDEO RIGHTS ACQUISITION AGREEMENT (DOMESTIC) Standard Terms and Conditions ("STANDARD TERMS") of the Home Video Rights Acquisition Agreement dated as of August 8, 1996, between TWENTIETH CENTURY FOX HOME ENTERTAINMENT, INC. ("FOX"), on the one hand, and SABAN ENTERTAINMENT, INC. ("SEI") and VENTURA FILM DISTRIBUTORS, B.V. ("VENTURA") (collectively, "SABAN"), on the other hand. 1. DEFINITIONS: All terms initially capitalized are specifically defined ----------- terms and are used as defined where they appear within quotation marks or pursuant to Paragraph 20 of these Standard Terms. If any action is to be taken hereunder on a day which is a Saturday, Sunday or a Holiday, then the day for taking such action shall be the immediately following day which is not such a day. 2. DISTRIBUTION RIGHTS: With respect to each Program released hereunder: ------------------- (a) Marketing, Distribution, Exploitation, Advertising and Publicity ---------------------------------------------------------------- Rights: Subject to Paragraph 12.(a) of the Main Agreement, additional rights in connection with marketing, advertising, promotion and exploitation of the Program, as referred to in the Main Agreement, shall include all such rights customarily attendant to distribution of a Motion Picture, including by way of illustration and not limitation, the following: (i) Cut, Edit, Dub and Subtitle: To cut, edit, dub and/or --------------------------- subtitle in the Spanish language only, and alter the Program or any parts thereof as Fox may deem necessary to conform to censorship, import permit and other legal requirements and/or to conform to time segment or exhibition standards of licensees and exhibitors and/or to create Spanish language versions; (ii) Title: To use end to authorize others to use the title of the ----- Program or to translate such title into the Spanish language; (iii) Publishing: To publish and license and authorize others to ---------- publish in the English or Spanish languages, in any media and in such form as Fox deems advisable, synopses (excluding story synopses on video packaging), summaries, adaptations, resumes and stories of and excerpts from the Program and from any literary, dramatic or musical material in the Program or upon which the Program is based, provided that each such instance of publishing is limited to 2,500 words unless otherwise approved in advance by Saban; (iv) Name and Likeness: To use and authorize others to use the name, ----------------- voice and likeness (and any simulation or reproduction thereof) of any person appearing in or rendering services in connection with the Program; (v) Excerpts and Clips: To exhibit and authorize others to exhibit, ------------------ without fee, in any language by any media, including radio and television, excerpts and clips from the Program and from any literary, dramatic or musical material in the Program or upon which the Program is based, subject to length limits consistent with guild obligations and otherwise standard in the entertainment industry for similar product; and (vi) Publicity Items: Subject to Saban's prior approval, not to be --------------- unreasonably withheld or delayed, to use and authorize the manufacture and distribution of T shirts, sweatshirts, -1- [*] CONFIDENTIAL TREATMENT REQUESTED posters and postcards for publicity purposes, and not for sale. (b) Commercial Tie-In Rights: Saban grants and licenses to Fox, for the ------------------------ License Period and Distribution Territory, the sole and exclusive right and license under copyright to exercise Commercial Tie-In Rights with respect to the Home Video Distribution and Home Video Exhibition of the Program, subject to Saban's prior approval, not to be unreasonably withheld or delayed. All monies received and earned by a Fox Home Video Distributor from the exercise of Commercial Tie-In Rights with respect to the Program shall be included in Gross Receipts. 3. CONDITIONS PRECEDENT: Fox's obligations hereunder (including the payment -------------------- of any sums payable hereunder) shall be in all respects subject to (a) Saban's compliance with each of Saban's material agreements herein; (b) Saban's delivery to Fox of such of the following documents as may be elsewhere required of Saban, signed and notarized as appropriate: Exclusive License; and Laboratory Access Letter(s); (c) receipt by Fox to the reasonable satisfaction of Fox's legal department of chain-of-title documentation with respect to the Program; and (d) Saban's delivery to Fox of a binder of coverage or endorsement issued directly by the insurance carrier for a policy of Motion Picture Producer and/or Distributor Errors and Omissions Insurance in accordance with the requirements set forth in Paragraph 5 below. 4. CLIPS/MATERIALS ACCESS: With respect to each Program released hereunder: ---------------------- (a) Clips: Fox may license, without fee, excerpts and clips from the ----- Program for purposes of advertising, publicizing or exploiting the Program as permitted under this Agreement. (b) Access to Advertising Materials/Spanish Language Versions: Fox and its --------------------------------------------------------- licensees shall have free access to and use of any existing versions of the Program dubbed or subtitled in the Spanish language ("SPANISH LANGUAGE VERSION(S)"), and all artwork in all advertising formats including print advertising, theatrical trailers, and television and radio advertising (including access to negatives or dupe negatives of still photographs, trailers and other pre-print material) and electronic press kits, which are used by the other in connection with the exploitation of rights granted with respect to the Program ("ADVERTISING MATERIALS"), to the extent such access does not interfere with the reasonable needs of the Party which owns and controls the Spanish Language Version(s) and/or Advertising Materials. Fox and Saban shall comply and use reasonable efforts to facilitate compliance by their respective licensees with the provisions of the Berne Convention, the Universal Copyright Convention and the laws of the applicable geographic area within which the Advertising Materials are utilized to protect the copyright of the Advertising Materials. 5. INSURANCE COVERAGE: With respect to each Program delivered to Fox ------------------ hereunder, Saban shall obtain and maintain a policy of Motion Picture Distributor's Errors and Omissions Insurance ("POLICY") in a form acceptable to Fox from an insurance company acceptable to Fox naming Fox and its parent, subsidiary and affiliated entities, successors, assigns and licensees, and their respective officers, agents, directors, owners, shareholders and employees, as additional insureds. Fox hereby approves AIG, The Chubb Group of Insurance Companies, Fireman's Fund Insurance Company, Transamerica Insurance Company and Continental Casualty as acceptable insurance companies. [*]. The Policy shall be for an initial period of not less than 2 years commencing as of the date of this Agreement and shall be renewed by Saban for each year of the License Period. The Policy shall provide for 30 days prior written notice to Fox in the event of any revision, modification or cancellation and that it shall be deemed -2- primary insurance and that any insurance obtained by Fox shall be excess insurance not subject to exposure until the coverage of the Policy shall be exhausted. A binder of coverage or endorsement issued directly by the insurance carrier for the Policy shall be delivered to Fox as soon as obtained but not later than Delivery of the Program. 6. DELIVERY: With respect to each Program released hereunder: -------- (a) Delivery Items: Saban shall pay all costs of Delivery. No later than -------------- 3 months prior to the Initial Video Release Date for the Program in the initial Territory of such release, Saban shall effect Delivery of such Program by delivering to Fox the items identified in EXHIBIT "B" - DELIVERY REQUIREMENTS (including SCHEDULE "B-1"), attached hereto, (collectively, "DELIVERY ITEMS"). (b) Quality: At the time of Delivery, the Program shall be fully edited, ------- titled and synchronized with language, dialogue, sound and music, shall be complete in all respects and of a quality, both artistic and technical, adequate for Home Video Distribution in the Distribution Territory as contemplated by this Agreement and equivalent to Fox's quality requirements for similar product. (c) Incomplete Delivery: As soon as possible after receipt by Fox of the ------------------- last Delivery Item, Fox shall notify Saban of any Delivery Items which are incomplete or fail to meet the requirements of this Paragraph 6. Saban shall thereafter have 15 business days to correct all such deficiencies by making delivery to Fox of the required Delivery Items with respect to the Program. Time is of the essence with respect to Delivery of the Program. Acceptance by Fox of incomplete or late Delivery items shall not be construed as a waiver by Fox of Saban's obligation to make Delivery, unless Fox notifies Saban in writing specifying the Delivery Item which need not be delivered or the requirement which is being waived. The cost of any Delivery Item which is supplied by Fox by reason of Saban's failure to make Delivery shall be reimbursed by Saban within 15 days of Fox's invoice. (d) Credits: Saban shall furnish to Fox instructions with regard to ------- screen, package and advertising credits as required by EXHIBIT "B". Saban represents and warrants to, and agrees with Fox, that such instructions shall comply with all applicable contractual, guild or union restrictions or the provisions of any applicable law or requirements of any trade association or governmental agency, including a censorship or ratings board. The casual or inadvertent failure by Fox or any third Party to comply with such credits shall not be a breach of this Agreement. Within a reasonable period following receipt of written notice from Saban specifying the details of Fox's failure to comply with such credits, Fox shall take such steps as are reasonably practicable to cure such failure prospectively. In no event shall any failure by Fox or any third Party to comply with the statement of credits permit Saban to terminate this Agreement or obtain injunctive relief with respect to the exercise by Fox of the Distribution Rights. Fox shall not alter such screen, package or advertising credits except to add Fox's logo to such screen credits. 7. COPYRIGHT: With respect to each Program released hereunder, the Program --------- when delivered to Fox shall contain a copyright notice in Saban's name or in the name of its grantor(s), as applicable, in compliance with the Universal Copyright Convention and the Copyright Law of the United States. Saban shall secure, register, renew and extend all copyrights in each Program and all related properties and to protect such copyrights and other related properties (including the characters contained in the Program) upon eligibility for copyright registration, renewal and extension or other protection. In the event of an infringement or alleged infringement of any of said copyrights or related rights, Saban shall proceed promptly and diligently to defend said copyrights and related rights; provided, however, that Saban give prior written notice to Fox. With respect to each Program released hereunder, Fox shall have the right to deduct and/or offset any claims, damages, liabilities or expenses Fox or any affiliated entity of Fox incurs with respect to any deficiency in the "chain of -3- title" of the Program or any underlying materials upon which the Program is based, including, without limitation, any deficiency in the copyright or any other right acquired in the underlying materials or the Program. 8. FURTHER ASSURANCES: Saban hereby agrees to duly execute, acknowledge, ------------------ procure and deliver to Fox such documents as may be requested by Fox in order to vest in Fox the Distribution Rights and such additional rights granted to Fox pursuant to this Agreement, including without limitation documentation of rights clearances and permissions that Fox may require to exercise the Distribution Rights hereunder. 9. CONFIDENTIALITY: Except to the extent disclosure is required by law, --------------- administrative or court order or must be made to the attorneys, accountants, auditors, employees, officers and directors of either Saban or Fox, neither Saban nor Fox shall disclose to any third Party the terms of this Agreement. Saban agrees to keep confidential any information regarding Fox which Saban obtains in connection with this Agreement, including in any reports, P&L's, vendor information and pricing or other information provided by Fox. Saban agrees not to disclose or use such information for any reason, except that Saban may disclose such information with respect to a Program released hereunder to auditors of third Party participants in the proceeds of such Program, provided such auditors agree to keep such information confidential as provided in this paragraph. Each of Saban and Fox agrees that breach of this provision shall cause irreparable harm to the other. 10. CENSORSHIP: With respect to each Program delivered to Fox hereunder, Fox ---------- shall not be obligated to distribute the Program in any country or area of the Distribution Territory if Fox is prohibited from so distributing the Program because of censorship, any MPA regulation or directive, or event of force majeure. 11. PRESS RELEASES: Neither Saban nor Fox shall issue or cause to be issued -------------- any press releases regarding this Agreement or the subject matter hereof without the other's prior written approval. 12. GENERAL ACCOUNTING PROVISIONS: With respect to each Program released ----------------------------- hereunder: (a) Fox Accounting Practices: Books of account which pertain to the ------------------------ distribution of the Program shall be maintained at such place or places in the Distribution Territory as may from time to time be customary with Fox pursuant to its ordinary business practices. All computations hereunder, including Gross Receipts and Home Video Distribution Expenses, shall be on a continuing and cumulative basis based upon financial data determined, recorded and computed as of the end of the particular statement period for which a periodic Accounting Statement is being rendered. (b) Foreign Currencies: ------------------ (i) Foreign Remittances: Monies received by a Fox Home Video ------------------- Distributor in a Restricted Currency are not includable in Gross Receipts. Monies paid to and received by a Fox Home Video Distributor in a currency of a Territory outside the United States which is not a Restricted Currency shall be deemed to have been converted into United States Dollars at the monthly average of the daily U.S. working day rate of foreign currency exchange as reported in the Wall Street Journal and shall be deemed to have been remitted to Fox in the United States as of the end of the Statement Period during which such monies were received by the Fox Home Video Distributor. Monies paid to and received by a Fox Home Video Distributor in United States Dollars in a Territory outside the United States which are freely remittable to the United States shall be deemed to have been remitted to Fox in the United States as of the end of the Statement Period during which such monies were received by the Fox Home Video Distributor. -4- (ii) "Restricted Proceeds": Such monies which are not includable in --------------------- Gross Receipts by reason of being in a Restricted Currency. (A) Notification: The amount of Restricted Proceeds, if any, ------------ shall be reported on each Accounting Statement in the currency units of the Restricted Currency. (B) Deposit of "Restricted Proceeds": As and when Saban's Share -------------------------------- becomes payable to Saban, Saban may notify Fox in writing that Saban elects to require settlement of Saban's share of the Restricted Proceeds remaining in any Territory outside the United States (not yet converted into United States Dollars and therefore not includable in Gross Receipts) in the currency of such Territory, by designating a bank or other representative in such Territory, to whom payment may be made for Saban's account. Subject to applicable Laws, such payment shall be made to such bank or representative at Saban's expense. Such payment shall fully satisfy Fox's obligations to Saban as to such Restricted Proceeds and Saban's share thereof. Any taxes or expenses incurred in connection with the making of such payment shall be deducted from the amount so paid, or otherwise charged to or paid by the Saban, in advance, if so required. In no event shall Fox be obligated to apply Gross Receipts not actually received or deemed received by Fox in United States Dollars in the United States to the recoupment of any costs deductible from Gross Receipts hereunder. (c) Withholdings: There shall be deducted or otherwise withheld from any ------------ payments to or for the account of Saban hereunder, the amount of any tax or other withholding which, pursuant to applicable Laws, is required to be made by Fox, based upon, measured by, or resulting from payments to or for the account of Saban. Such deduction or withholding shall be in accordance with the good faith interpretation by Fox of such Laws. Fox shall not be liable to Saban for the amount of such deduction or withholding because of the payment of said amount to the Party involved. Saban shall make and prosecute any and all claims which it may have as to such tax deductions and/or withholdings directly with the Party involved; however, if Fox receives a refund of such a tax deduction or withholding from the Party involved that is specifically attributable to tax amounts deducted or withheld from any payments to Saban, the appropriate amount of such refund shall be included in Saban's Share. In no event shall Saban be entitled, directly or indirectly, to claim, share or participate in any credits, deductions, or other benefits of any kind or nature with respect to any such taxes or withholdings, nor shall the deductible or withholdable amount of any such taxes or withholdings (however determined) be decreased (nor Gross Receipts increased) because of the manner in which such taxes or other withholdings and tax credits are treated by Fox in filing its net income, corporate franchise, excess profits or other similar tax returns. (d) Overpayment/Offset: If Fox makes any overpayment to Saban hereunder ------------------ for any reason (including without limitation as a result of bad debt) or if Saban is or becomes indebted to Fox for any reason, then Saban shall pay to Fox such overpayment or indebtedness on demand, and if Saban fails to pay such overpayment or indebtedness within 10 days following such demand, Fox may deduct and retain for its own account an amount equal to any such overpayment or indebtedness from any sums that may become due or payable by Fox to Saban or for the account of Saban. (e) Audit: If Saban requests by written notice pursuant to the Notices ----- provision of the Main Agreement, Fox shall permit Saban to audit, at the sole cost and expense of Saban (except as provided below), Fox's books and records with regard to Home Video Distribution of the Approved Programs and/or accounting to Saban hereunder 1 time per calendar year during the Distribution -5- Term and for one calendar year following expiration of the Distribution Term ("AUDIT"). Each such Audit shall be subject to the following. (i) Commencement/Duration: Such audit shall (A) commence no earlier --------------------- than 30 days after such written notice to Fox, and (B) continue for a maximum period of 30 days, provided Fox cooperates with regard to access to its books and records. (ii) Auditor: Such Audit shall be performed by a first-class and ------- reputable firm of certified public accountants designated by Saban in such written notice, the designation of which shall be subject to the reasonable approval of Fox ("AUDITOR") (subject to disqualification by Fox in any particular instance for conflict of interest). (iii) Audit Limitations: Such Audit shall be limited to an ----------------- examination of the Fox books of account which relate to the Approved Programs, in order to verify the accuracy of the transactions or items of information ("FINANCIAL INFORMATION") as first reflected in any Accounting Statement the mailing date of which occurred during the 18 month period prior to the date Fox receives Saban's written notice of its request to audit. The Auditor may make copies of or make excerpts from only such part of the Fox books of account which relate to matters and time frame subject to examination as herein provided. Such Audit shall be made during reasonable business hours, only at such place where said Fox books of account are maintained in the Distribution Territory, in such manner as not to unreasonably interfere with Fox's normal business activities. The records supporting the Financial Information reflected in the particular Accounting Statement shall not be examined more than once. A true copy of all reports made by the Auditor shall be delivered to Fox at such time as written objection is delivered to Fox as to the Financial Information. Such right to examine is limited to the Programs and under no circumstances shall Saban or the Auditor have the right to examine records relating to Fox's business generally (except that the Auditor shall be permitted to examine records directly relating to amounts deducted by Fox as Home Video Distribution Expenses hereunder) or with respect to any other licensor or Motion Picture for purposes of comparison or otherwise. If any such Audit shall reveal that Saban's Share for all periods covered by such Audit shall have been under-accounted by more than 10% of the true amount thereof, then Saban may so notify Fox and Fox shall promptly reimburse Saban for its reasonable, direct, out-of-pocket costs of making such Audit (in addition to the amount of such under-accounting). (iv) Incontestability: All Financial information reflected in an ---------------- Accounting Statement rendered to Saban, including any and all information contained in the Fox books of account and Fox records and all supporting documentation therein (collectively, "RECORDS") shall be conclusive and binding upon Saban and Saban shall forever be barred from objecting for any reason or maintaining or instituting any action or proceeding which relates to any transactions or questions of accuracy of any item of information reflected therein, including any and all information contained in the Records which pertain in any way to such Financial Information, unless a written objection specifying in detail the Financial Information to which Saban objects and the nature and reasons for such objection is delivered to Fox within 24 months from the date of mailing of the Accounting Statement in which the Financial Information is first reflected irrespective of when or if an audit of such Accounting Statement was initiated or completed. Financial Information not specified in such written objection may not be raised subsequent to the expiration of said 24 month period. If Saban's objections are not resolved amicably, Saban's objections shall be deemed to have been waived unless Saban maintains or institutes an action or proceeding with respect thereto within 12 months after the expiration -6- of said 24 month period. The inclusion in any Accounting Statement of Financial Information which have appeared in a previous Accounting Statement shall not make any such Financial Information, including any and all information contained in the Records which in any way pertain to such Financial Information, subject to objection again nor recommence the running of the 24 month period as to such Financial Information or any and all information contained in the Records which in any way pertain to such Financial Information. The right to examine and/or object and/or to maintain or institute any action or proceeding shall not be extended by reason of requesting an opportunity to audit. (v) Saban's Sole Rights: Saban agrees that Saban's sole right to ------------------- receive Accounting Statements in connection with the Programs, to examine Records, to Audit and/or to object as to Financial Information and/or any other matter with respect to Saban's share of Net Receipts and/or to maintain or institute any action or proceeding shall be only as provided in this Agreement, and Saban hereby waives the benefits of any applicable Law under which Saban otherwise may be entitled to an accounting, rights of examination and/or rights of objection and/or rights to maintain or institute any action or proceeding. Saban further agrees that the accountings to Saban in connection with the Programs as provided in this Agreement shall not be deemed a book account or an open account between Fox and Saban and shall not be viewed in any way so as to deny the applicability of the incontestability provisions set forth in this Agreement. (f) Assignment by Saban: Any assignment by Saban of its rights to receive ------------------- payments under the Main Agreement shall, at all times, be subject to all Laws and to all rights of Fox hereunder. Fox shall not be obligated to pay in accordance with any partial assignment if the formula or basis of computation creates any doubt of interpretation whereby Fox takes any risk whatsoever and/or if all the assignees fail to execute and deliver an agreement in Fox's usual form appointing a single person as a disbursing agent, to whom Fox may make all such payments thereafter regardless of any further assignment(s). Fox's payment in accordance with any such assignment or designation shall be deemed to be equivalent of payment to Saban hereunder and shall release and discharge Fox from any further liability or obligation to Saban for the payment of monies hereunder. Saban's rights to inspect and audit the Fox books of account shall not be assignable without Fox's prior written consent. (g) Creditor-Debtor Relationship: Saban expressly acknowledges the ---------------------------- relationship between Saban and Fox to be that of creditor and debtor with respect to all matters including the distribution, exploitation and any other disposition of the Program, any elements thereof or rights therein and the computation and payment of any monies due Saban hereunder. Furthermore, Saban expressly acknowledges there is no fiduciary relationship between Fox and Saban and waives any right to make any claim to the contrary. Nothing contained in this Agreement, including these Standard Terms, shall be construed to create an agency, trust, fiduciary obligation or specific fund as to Gross Receipts of the Program or Saban's Share thereof or of any other monies, or as to any other matter with respect to the Program, or to prevent or preclude Fox from commingling Gross Receipts or any monies due Saban with any other monies or to give Saban a lien on Fox's exercise of the Distribution Rights or an assignment of the proceeds thereof. Fox's obligation to pay Saban hereunder shall not bear interest nor entitle Saban to gains which may accrue to such funds prior to payment to Saban. 13. SABAN'S REMEDIES: ---------------- (a) Prior to Fox's Recoupment: At all times prior to recoupment by Fox of ------------------------- both Fox's Buy-Out Contribution and the Buy-Out Loan from amounts received from the Home Video Distribution of the Programs released hereunder, Saban shall not have any right to terminate or rescind this Agreement -7- because of any default or breach of any kind by Fox, its affiliated or subsidiary entities, licensees or sublicensees, nor shall Saban be entitled to seek or obtain any injunctive relief with respect to the exercise of the Distribution Rights granted to Fox hereunder by reason of any alleged default or breach by Fox, its affiliated or subsidiary entities, licensees or sublicensees, it being agreed that the only remedy of Saban in any such event shall be an action for an accounting or for damages. (b) From and After Fox's Recoupment: From and after recoupment by Fox of ------------------------------- both Fox's Buy-Out Contribution and the Buy-Out Loan from amounts received from the Home Video Distribution of the Programs released hereunder, in the event of any material default or breach of this Agreement by Fox and the failure of Fox to cure such default or breach within 15 days after the date of service of written notice from Saban specifying the exact nature of the applicable default or breach, Saban shall have the right to terminate this Agreement, without limiting any other right or remedy that Saban may otherwise have. (c) Determination of Fox's Recoupment: Fox shall be deemed to have --------------------------------- recouped both Fox's Buy-Out Contribution and its Buy-Out Loan effective on the day following the end of that accounting period for which the applicable Accounting Statement accurately reflects that Fox has received sufficient aggregate amounts from Home Video Distribution of the Programs to permit such recoupment. 14. SABAN'S DEFAULT: In the event of any material default or breach of this --------------- Agreement by Saban and the failure of Saban to cure such default or breach within 15 days after the date of service of written notice from Fox specifying the exact nature of the applicable default or breach, Fox shall have the right to terminate this Agreement. If this Agreement is terminated as a result of Saban's material default or breach, Saban shall immediately refund to Fox any sums paid by Fox to Saban hereunder or expended by Fox hereunder in connection with the exercise of the Distribution Rights without limiting any other right or remedy that Fox may otherwise have. 15. WAIVER: No express or implied waiver by either Fox or Saban of any ------ provision of this Agreement or of any breach or default of the other shall constitute a continuing waiver, and no waiver shall be effective unless in writing. 16. CHOICE OF LAW: This Agreement shall be interpreted in accordance with the ------------- laws of the State of California, United States of America, applicable to contracts made therein, but without regard to any principles of conflict of laws. 17. LEGAL ACTION: Saban and Fox agree that all actions, proceedings or ------------ litigation relating to this Agreement shall be instituted and prosecuted solely within Los Angeles County, the State of California, and Saban and Fox hereby consent to the jurisdiction of the state courts of California and the federal courts located within the State of California with respect to any matter arising out of or relating to this Agreement. 18. ASSIGNMENT: Saban shall have the right to assign this Agreement to its ---------- parents, subsidiaries or affiliates, or any entity acquiring all or substantially all of the assets of Saban or into which Saban is merged or consolidated. Saban shall also have the right to assign its right to receive payment of all amounts due Saban hereunder to any Party, provided both a Notice of Irrevocable Assignment and a Distributor's Acceptance in Fox's usual form shall be executed by Saban and by the assignee and delivered by Fox. Fox shall have the right to assign this Agreement to its parents, subsidiaries or affiliates, or any entity acquiring all or substantially all of the assets of Fox or into which Fox is merged or consolidated. Fox shall also have the right to assign its right to receive Gross Receipts hereunder to any Party. Any assignment shall be binding upon the other Party and shall inure to the benefit of the assignor's successors, assignees, licensees, grantees and associated, affiliated or subsidiary entities. -9- 19. MISCELLANEOUS: ------------- (a) Amendment: This Agreement shall not be amended or modified, nor shall --------- any provision hereof be waived, except in writing signed by the parties hereto. (b) No Waiver: No payment by Saban shall constitute a waiver of any term --------- or condition of this Agreement. (c) Relationship: Nothing contained in this Agreement shall constitute ------------ either party the agent of the other, and nothing shall be construed so as to create a joint venture or partnership between Saban and Fox or any other relationship other than creditor and debtor, or a third Party beneficiary relationship as to any third Party. Except as otherwise specifically set forth herein, neither Saban nor Fox shall be authorized or empowered to make any representation or commitment or to perform any act which shall be binding on the other unless expressly authorized or empowered in writing. (d) Paragraph Headings: Paragraph headings are inserted only for ------------------ convenience of reference and are not relevant in interpreting or construing this Agreement. (e) Parties: This Agreement shall benefit and be binding upon the parties ------- hereto and their respective successors and assigns. (f) Remedies Cumulative: All remedies, rights, undertakings, obligations ------------------- and agreements contained in this Agreement shall be cumulative and none of them shall be in limitation of any other remedy, right, undertaking, obligations or agreement of either party. (g) Severability: If there exists any conflict between any provision of ------------ this Agreement and any statute, law or ordinance, the latter will prevail and the provisions of this Agreement shall be curtailed, limited or eliminated only to the extent necessary to remove such conflict, and as so modified this Agreement shall continue in full force and effect. 20. DEFINITIONS: ----------- (a) "AFFILIATE": A joint venture, partnership or other entity, other than ----------- a corporate entity, as to which Twentieth Century Fox Home Entertainment, Inc. or its successor (collectively, "FOX") or a Subsidiary is the sole Party with respect to, or shares in, the actual management, operation, and expenses thereof; or a corporate entity in which Fox or a Subsidiary has a controlling interest represented by stock ownership in excess of 20%, but not more than 50%, of the total issued and outstanding voting stock of such corporate entity. (b) "BUSINESS DAY(S)": Any day(s) of the week excluding Saturdays, ----------------- Sundays, and Holidays. (c) "CASSETTE": All forms of videocassettes, cartridges, Laserdiscs, ---------- videograms, tapes or any other format, now known or hereafter devised, and designed to be used in conjunction with a reproduction apparatus which causes a visual image (whether or not synchronized with sound) to be seen on the screen of a television receiver, television monitor, or any comparable device now known or hereafter devised. (d) "COMMERCIAL TIE-IN RIGHTS": The right to license the use of -------------------------- characters, designs, visual representations, names, likenesses and/or characteristics of artists, physical properties or other materials appearing or used in or in connection with a Motion Picture or all or any part of the Literary -9- Material in connection with (1) the advertising, publicizing, promoting and/or packaging of (but not embodying on or in) merchandise, products or services and/or (2) premiums and/or promotions. (e) "DELIVERY": For each Program, the delivery by Saban and acceptance by ---------- Fox of (i) the items set forth on EXHIBIT "B" and SCHEDULE "B-1" to the Main Agreement, (ii) the required Laboratory Access Letter(s), and (iii) the Exclusive License, for the Program. (f) "DIRECT MARKETING DISTRIBUTION": The sale of Cassettes of a Motion -------------------------------- Picture directly to consumers for Home Video Exhibition (other than through wholesale or retail dealers and outlets) through any direct marketing distribution method, including direct mail, mail order, telephone or computer order, club memberships, television and/or radio solicitations, continuity series offerings or single title offerings. (g) "EPISODE": Each individual Television Motion Picture which is part of --------- a Television Series. (h) "FREE TELEVISION DISTRIBUTION": The lease or license of a Motion ------------------------------ Picture to one or more Parties with the right to engage in the Free Television Exhibition of the Motion Picture and/or to grant licenses to other Parties to engage in the Free Television Exhibition and/or Free Television Distribution of the Motion Picture. (i) "FREE TELEVISION EXHIBITION": Television Exhibition, other than Pay ---------------------------- Television Exhibition, without any fee being charged to the viewer for the privilege of unimpaired reception of such exhibition. For purposes of this definition, any government imposed fees or taxes applicable to the use of television receivers generally or a regular periodic access, carriage or equipment fee (but not any optional premium subscription charge or fee paid with respect to Pay Television Exhibition) paid by a subscriber to a cable television transmission service or other transmission service or agency for the privilege of unimpaired reception shall not be deemed a fee charged to the viewer. (j) "GUILD PAYMENT": With respect to each Program, all costs incurred with --------------- respect to payments required, including employer fringe benefits and taxes payable with respect thereto, under applicable collective bargaining agreements by reason of or as a condition to any exhibition of the Program, or any part thereof, or any use or reuse thereof for any purpose or in any media whatsoever. (k) "HOLIDAYS": The days known in the United States as New Year's Day, ---------- President's Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day, the day after Thanksgiving Day, and Christmas Day; except that if any of the foregoing, Holidays fall on a Saturday or Sunday, then the Holiday shall be deemed to be the immediately preceding Friday or immediately succeeding Monday, respectively. (l) "HOME VIDEO DISTRIBUTION": The lease or license of a Motion Picture to ------------------------- one or more Parties with the right to engage in the manufacture, distribution including Direct Marketing Distribution, rental and/or sale of Cassettes of the Motion Picture to one or more Parties for Home Video Exhibition of the Motion Picture and/or to engage in the further lease or license of the Motion Picture to other Parties with the right to engage in the manufacture, distribution, rental and/or sale of Cassettes of the Motion Picture for Home Video Exhibition of the Motion Picture. (m) "HOME VIDEO EXHIBITION": The non-public exhibition of the Motion ----------------------- Picture by means of a Cassette in a private residence for viewing at the place of origin of such exhibition. -10- (n) "HOME VIDEO MOTION PICTURE": A Motion Picture primarily intended to be --------------------------- initially distributed by means of Cassettes for Home Video Exhibition. (o) "INCLUDING": Whenever examples are used after the word including (or ----------- any derivation thereof), such examples are intended to be illustrative only and shall not limit the generality of the words accompanying the word including (or any derivation thereof). (p) "INITIAL RELEASE DATE": Subject to Paragraph 12.(a) of the Main ---------------------- Agreement, the date of initial release by a Home Video Distributor of Cassettes of a Program for Home Video Exhibition in a Territory of the Distribution Territory, as determined by Fox or its designee. (q) "INTERACTIVE MEDIA": Multimedia works which contain software code, ------------------- including data, information or other material, which provide a mechanism for access by the user in a non-linear fashion using computer information storage, retrieval and management techniques, and which permit the user to control, alter or otherwise manipulate the presentation of such information, as exemplified by videogames, CD-I and CD-ROM, but not including works that permit the linear presentation of an entire Motion Picture. (r) "INTERACTIVE MEDIA MERCHANDISING RIGHTS": The right to license, ---------------------------------------- manufacture, distribute, and sell Interactive Media products based on a Program or all or any part of the Literary Material. (s) "LASERDISCS": All forms of videodiscs now known or hereafter devised, ------------ designed to be used in conjunction with a reproduction apparatus which by means of a laser optical system causes an image to be visible on the screen of a television receiver, television monitor, or any other comparable device. (t) "LAW": Any present or future statute or ordinance, whether municipal, ----- county, state, national or territorial; any executive, administrative or judicial regulation, order, judgment or decree; any treaty or international convention; any rule or principle of common law or equity, or any requirement with force of law. (u) "LITERARY MATERIAL": Written matter, whether published or unpublished, ------------------- in any form, including a novel, treatment, outline, screenplay, teleplay, story, manuscript, play or otherwise, which may be included in or upon which a Motion Picture may be based, but excluding characters, designs, visual representations, names, likenesses and/or characteristics of artists, physical properties or other materials appearing or used in or in connection with such Motion Picture. (v) "MOTION PICTURE": Pictures of every kind and character whatsoever, ---------------- including all present and future technological developments, whether produced by means of any photographic, electrical, electronic, mechanical or other processes or devices now known or hereafter devised, and their accompanying devices and processes whereby pictures, images, visual and aural representations are recorded or otherwise preserved for projection, reproduction, exhibition, or transmission by any means or media now known or hereafter devised in such manner as to appear to be in motion or sequence other than Interactive Media. (w) "MOTION PICTURE COPY": Any negative or positive Motion Picture film in --------------------- any gauge, video or electronic tape recording, Cassette, disc or other physical material or substance of any kind produced by means of any photographic, electrical, electronic, mechanical or other process or device now known or hereafter devised, on or with respect to which a Motion Picture or any part thereof is printed, imprinted, recorded, reproduced, duplicated or otherwise preserved. -11- (x) "MOVIE-FOR-TELEVISION": A Television Motion Picture in excess of 60 ---------------------- minutes of running time intended to be exhibited in its entirety as a single exhibition and which is not part of a Television Series or Television Mini-Series and which is not a Pilot. (y) "NON-THEATRICAL DISTRIBUTION": The lease or license of a Motion ----------------------------- Picture to one or more Parties with the right to engage in the Non- Theatrical Exhibition of the Motion Picture and/or to grant licenses to other Parties to engage in the Non-Theatrical Exhibition and/or Non- Theatrical Distribution of the Motion Picture. (z) "NON-THEATRICAL EXHIBITION": The exhibition of a Motion Picture using -------------------------- any form of Motion Picture Copy in any manner now known or hereafter devised by any medium or process now known or hereafter devised, other than Theatrical Exhibition, Television Exhibition, or Home Video Exhibition. Non-Theatrical Exhibition includes the exhibition of a Motion Picture (1) in private residences (other than Television Exhibition and Home Video Exhibition), (2) on airplanes, trains, ships and other common carriers, (3) in schools, colleges and other educational institutions, libraries, governmental agencies, business and service organizations and clubs, churches and other religious oriented groups, museums, and film societies (including transmission of the exhibition by closed circuit within the immediate area of the origin of such exhibition), and (4) in permanent or temporary military installations, shut-in institutions, prisons, retirement centers, offshore drilling rigs, logging camps, and remote forestry and construction camps (including transmission of the exhibition by closed circuit within the immediate area of the origin of such exhibition). (aa) "PARTY": Any individual, corporate entity, partnership, joint ------- venture, organization or other entity, firm or governmental agency. (bb) "PAY TELEVISION DISTRIBUTION": The lease or license of a Motion ----------------------------- Picture to one or more Parties with the right to engage in the Pay Television Exhibition of the Motion Picture and/or to grant licenses to other Parties to engage in the Pay Television Exhibition and/or Pay Television Distribution of the Motion Picture. (cc) "PAY TELEVISION EXHIBITION": Television Exhibition which is --------------------------- available on the basis of the payment of a premium subscription charge or fee (as distinguished from an access, carriage or equipment fee) for the privilege of unimpaired reception of a transmission for viewing in a private residence or in a hotel, motel, hospital or other living accommodation or other non-public area, whether (1) such transmission is on a pay-per-view, pay-per-show, pay-per-channel or pay-per-time period basis, or (2) such premium subscription charge or fee is charged to the operator of a hotel, motel, hospital or other living accommodation. (dd) "PAY-PER-VIEW TELEVISION EXHIBITION": Television Exhibition in ------------------------------------ private residences (expressly excluding any such exhibition in hotels, motels and the like) on a pay-per-view, pay-per-day, pay-per-show or similar basis whereby a viewer pays a separate charge for the right to receive an unimpaired exhibition of any particular Motion Picture(s) or group of Motion Pictures. Pay-Per-View Television Exhibition shall not include Pay/Basic Television Exhibition, or Free Television Exhibition. (ee) "PAY/BASIC TELEVISION EXHIBITION": Television Exhibition of a Motion --------------------------------- Picture which is available on the basis of the payment of a regular periodic access, carriage or equipment fee to a cable television transmission service and/or a premium subscription charge or fee to a program service for the right to receive such Motion Picture with unimpaired reception. Pay/Basic Television Exhibition shall not include Free Television Exhibition, or Pay-Per-View Television Exhibition. -12- (ff) "PILOT": A Television Motion Picture produced as a prototype for the ------- purpose of interesting an exhibitor, sponsor or distributing entity in ordering a Television Series based upon such Television Motion Picture. (gg) "RESTRICTED CURRENCY": A currency which is or becomes subject to --------------------- moratorium, embargo, banking or exchange restrictions, or restrictions against remittances, or which in the business judgment of Fox is commercially impracticable to remit. (hh) "SUBSIDIARY": A corporate entity in which Fox or a Subsidiary has a ------------ controlling interest represented by stock ownership in excess of 50% of the total issued and outstanding voting stock of such Party. (ii) "TELEVISION DISTRIBUTION": The lease or license of a Motion Picture ------------------------- to one or more Parties with the right to engage in the Television Exhibition of the Motion Picture and/or to grant licenses to other Parties to engage in the Television Exhibition and/or Television Distribution of the Motion Picture. (jj) "TELEVISION EXHIBITION": The exhibition of a Motion Picture using ----------------------- any form of Motion Picture Copy for transmission by any means now known or hereafter devised (including over-the-air, cable, wire, fiber, master antennae, satellite, microwave, closed circuit, laser, multi-point distribution services or direct broadcast systems) which transmission is received, directly or indirectly by retransmission or otherwise, impaired or unimpaired, for viewing the Motion Picture on the screen of a television receiver or comparable device now known or hereafter devised (including high definition television), other than (i) Home Video Exhibition, (ii) Theatrical Exhibition, or (iii) Non-Theatrical Exhibition. (kk) "TELEVISION MINI-SERIES": A closed end Television Series consisting ------------------------ of a limited number of Episodes (in excess of one Episode), each of which is in excess of 59 minutes of running time. (ll) "TELEVISION MOTION PICTURE": A Motion Picture primarily intended to --------------------------- be initially distributed for Television Exhibition. (mm) "TELEVISION SERIES": Related Episodes intended to be distributed ------------------- as a group in episodic format (in which a continuing cast of characters' performs roles in different factual situations in each Episode in accordance with an established story line) or anthology format (in which there is no continuing cast of characters performing roles and no continuing established story line) or a combination of an episodic and an anthology format. (nn) "TERRITORY": Any specific geographic area constituting a nation, ----------- country, state, governmental entity or any subdivision thereof located anywhere in the universe. (oo) "THEATRICAL DISTRIBUTION: The lease or license of a Motion Picture ------------------------ to one or more Parties with the right to engage in Theatrical Exhibition of the Motion Picture and/or to grant licenses to other Parties to engage in the Theatrical Exhibition and/or Theatrical Distribution of the Motion Picture. (pp) "THEATRICAL EXHIBITION": The exhibition of a Motion Picture using ----------------------- any form of Motion Picture Copy by any process now known or hereafter devised in walk-in or drive-in theatres open to the general public on a regularly scheduled basis where a fee is charged for admission to view the Motion Picture. END OF STANDARD TERMS AND CONDITIONS -13- EXHIBIT "A"
==================================================================================================================================== TITLE TYPE AND QUANTITY TERRITORIES TERM - ------------------------------------------------------------------------------------------------------------------------------------ 2IIip-4TV Live action: Five one-hour U.S. and Canada Perpetuity episodes - ------------------------------------------------------------------------------------------------------------------------------------ Adventures of Oliver Twist, Animated: 26 half-hour U.S. and Canada Perpetuity Saban's episodes - ------------------------------------------------------------------------------------------------------------------------------------ Adventures of T-Rex Animated: 52 half-hour Canada only (subject TBD episodes to certain shared rights) - ------------------------------------------------------------------------------------------------------------------------------------ Amilcar's Window Live action: 156 nine minute U.S. and Canada TBD French-language segments - ------------------------------------------------------------------------------------------------------------------------------------ Archibald the Magician Animated: 50 five minute U.S. and Canada TBD segments - ------------------------------------------------------------------------------------------------------------------------------------ Around the World in 80 Animated: 26 half-hour U.S. and Canada Perpetuity Dreams episodes - ------------------------------------------------------------------------------------------------------------------------------------ Attack of the Killer Animated: 21 half-hour U.S. and Canada Perpetuity Tomatoes episodes (U.S. video release subject to Fox Kids Network holdbacks) - ------------------------------------------------------------------------------------------------------------------------------------ BattleTech Animated: 13 half-hour U.S. and Canada Perpetuity episodes - ------------------------------------------------------------------------------------------------------------------------------------ BeetleBorgs Live action: 53 half-hour U.S. and Canada Perpetuity episodes (U.S. video release subject to Fox Kids Network holdbacks) - ------------------------------------------------------------------------------------------------------------------------------------ Beulebeul Animated: 12 two-minute- U.S. and Canada TBD fifty-second shorts - ------------------------------------------------------------------------------------------------------------------------------------ Beverly Hills Teens Animated: 65 half-hour Canada only Expires episodes 4/20/2009 - ------------------------------------------------------------------------------------------------------------------------------------ Bob in a Bottle Animated: 52 half-hour U.S. and Canada Expires episodes 12/19/2000 - ------------------------------------------------------------------------------------------------------------------------------------ Bobby's World Animated: 58 half-hour U.S. and Canada Perpetuity episodes (U.S. video release subject to Fox Kids Network holdbacks) - ------------------------------------------------------------------------------------------------------------------------------------ Bots Master Animated: 40 half-hour U.S. and Canada TBD episodes - ------------------------------------------------------------------------------------------------------------------------------------ Botts (La Vie Des Bote) Live action: 130 French- U.S. and Canada TBD language shorts of up to fifteen minutes each - ------------------------------------------------------------------------------------------------------------------------------------ Bumpery Boo Animated: 43 half-hour U.S. and Canada Expires episodes (also formatted as 2/28/2007 129 seven-minute segments) - ------------------------------------------------------------------------------------------------------------------------------------
-1-
==================================================================================================================================== TITLE TYPE AND QUANTITY TERRITORIES TERM - ------------------------------------------------------------------------------------------------------------------------------------ Button Nose Animated: 26 half-hour U.S. and Canada Expires episodes 7/17/2004 - ------------------------------------------------------------------------------------------------------------------------------------ C.O.P.S. Animated: 65 half-hour Canada only Expires episodes 10/30/2009 - ------------------------------------------------------------------------------------------------------------------------------------ Camp Candy Animated: 52 half-hour U.S. and Canada Perpetuity episodes (12 are reformatted versions of the remaining 40) - ------------------------------------------------------------------------------------------------------------------------------------ Captain N: The Game Animated: 26 half-hour Canada only episodes 1-13 Master episodes expire 12/19/2010; episodes 14-26 expire 1/1/2012 - ------------------------------------------------------------------------------------------------------------------------------------ Care Bears, The Animated: 11 half-hour U.S. and Canada Expires episodes 4/20/2009 - ------------------------------------------------------------------------------------------------------------------------------------ Christmas Adventure, A Animated: 1 one-hour special U.S. and Canada TBD - ------------------------------------------------------------------------------------------------------------------------------------ Count De Clues Animated: TBD U.S. and Canada Perpetuity (U.S. video release subject to Fox Kids Network holdbacks) - ------------------------------------------------------------------------------------------------------------------------------------ Creepy Crawlers Animated: 22 half-hour U.S. and Canada Perpetuity episodes - ------------------------------------------------------------------------------------------------------------------------------------ Cro and Bronto Animated: 45 one minute U.S. and Canada TBD twenty second shorts - ------------------------------------------------------------------------------------------------------------------------------------ Cupido Animated: 26 thirteen minute U.S. and Canada TBD shorts - ------------------------------------------------------------------------------------------------------------------------------------ Dennis the Menace Animated: 78 half-hour Canada only Expires episodes 4/20/2009 - ------------------------------------------------------------------------------------------------------------------------------------ Diplodos Animated: 26 half-hour U.S. and Canada TBD episodes - ------------------------------------------------------------------------------------------------------------------------------------ Eagle Riders Animated: 65 half-hour U.S. and Canada Expires episodes 9/7/2004 - ------------------------------------------------------------------------------------------------------------------------------------ Eek!Stravaganza (including Animated: 65 half-hour U.S. and Canada Perpetuity Eek the Cat, Terrible episodes (U.S. video release Thunder Lizards, and The subject to Fox Kids Klutter segments) Network holdbacks) - ------------------------------------------------------------------------------------------------------------------------------------
-2-
==================================================================================================================================== TITLE TYPE AND QUANTITY TERRITORIES TERM - ------------------------------------------------------------------------------------------------------------------------------------ Fairy Tale Classics (a/k/a Animated: 10 eleven-minute U.S. and Canada Perpetuity My Favorite Fairy Tales; episodes including "Ugly a/k/a Fairy Tale Favorites) Duckling", "Three Little Pigs", "Snow White", "Little Red Riding Hood", "Puss 'N Boots", "Sambo", "Wolf and 7 Little Goats", "Little Mermaid", "Cinderella", and "Ali Baba and 40 Thieves" - ------------------------------------------------------------------------------------------------------------------------------------ Funky Fables (a/k/a/ Fairy Animated: 26 half-hour U.S. and Canada Expires Tale Express) episodes 6/20/1998 - ------------------------------------------------------------------------------------------------------------------------------------ Galactically Yours Live action: 230 fifteen U.S. and Canada TBD second to thirty second skits - ------------------------------------------------------------------------------------------------------------------------------------ Goosebumps Live action: TBD U.S. only (U.S. Expires 15 video years after release subject to delivery of last Fox Kids Network new episode holdbacks) ordered by Fox Kids Network) - ------------------------------------------------------------------------------------------------------------------------------------ Grimm's Fairy Tales I Animated: 26 half-hour U.S. and Canada Expires episodes 7/19/2005 - ------------------------------------------------------------------------------------------------------------------------------------ Grimm's Fairy Tales II Animated: 21 half-hour U.S. and Canada Expires episodes 3/31/2006 - ------------------------------------------------------------------------------------------------------------------------------------ Grunt and Punt Animated: TBD U.S. and Canada Expires (U.S. video release 12/31/2004 subject to Fox Kids Network holdbacks) - ------------------------------------------------------------------------------------------------------------------------------------ Gulliver's Travels, Saban's Animated: 26 half-hour U.S. and Canada Perpetuity (a/k/a Gulliver's Travels) episodes - ------------------------------------------------------------------------------------------------------------------------------------ Hallo Spencer Animated: 52 half-hour U.S. and Canada Expires episodes 10/7/1999 - ------------------------------------------------------------------------------------------------------------------------------------ Happy Ness Animated: 13 half-hour Canada only TBD episodes - ------------------------------------------------------------------------------------------------------------------------------------ Heathcliff Animated: 86 half-hour Canada only Expires episodes 4/20/2009 - ------------------------------------------------------------------------------------------------------------------------------------ Hey Vern, It's Ernest Live action: 13 half-hour Canada only Expires episodes 4/17/2010 - ------------------------------------------------------------------------------------------------------------------------------------ Honeybee Hutch Animated: 65 half-hour U.S. and Canada Expires episodes 10/19/2004 - ------------------------------------------------------------------------------------------------------------------------------------ Huckleberry Finn Animated: 26 half-hour U.S. only Expires episodes 12/19/1999 - ------------------------------------------------------------------------------------------------------------------------------------ Hulk Hogan's Rock 'N Animated: 26 half-hour Canada only Expires Wrestling episodes 4/20/2009 - ------------------------------------------------------------------------------------------------------------------------------------
-3-
==================================================================================================================================== TITLE TYPE AND QUANTITY TERRITORIES TERM - ------------------------------------------------------------------------------------------------------------------------------------ Inspector Gadget Animated: 86 half-hour Canada only Expires episodes and 1 Christmas 4/20/2009 special - ------------------------------------------------------------------------------------------------------------------------------------ Iznogoud Animated: 26 half-hour U.S. and Canada Perpetuity episodes (also formatted at 52 thirteen minute segments) - ------------------------------------------------------------------------------------------------------------------------------------ Jayce and the Wheeled Animated: 65 half-hour Canada only Expires Warriors episodes 4/20/2009 - ------------------------------------------------------------------------------------------------------------------------------------ Journey to the Heart of the Animated: 26 1/2 Hr. episodes U.S. only Perpetuity World - ------------------------------------------------------------------------------------------------------------------------------------ Jungle Book Animated Special: 1 half-hour U.S. and Canada Perpetuity - ------------------------------------------------------------------------------------------------------------------------------------ Jungle Tales (a/k/a Uriqpen, Animated: 22 half-hour U.S. and Canada Expires The Rescue Squad) episodes 5/1/1999 - ------------------------------------------------------------------------------------------------------------------------------------ Kid 'N Play Animated: 13 half-hour U.S. and Canada Perpetuity episodes - ------------------------------------------------------------------------------------------------------------------------------------ Kidd Video 26 half-hour episodes U.S. and Canada Perpetuity - ------------------------------------------------------------------------------------------------------------------------------------ Lazer Patrol (a/k/a Lazer Tag Animated: 13 half-hour U.S. and Canada Perpetuity Academy) episodes - ------------------------------------------------------------------------------------------------------------------------------------ Legend of Zelda, The (final Animated: 13 half-hour Canada only Expires 13 episodes of The Super episodes 12/16/2010 Mario Bros. Super Show) - ------------------------------------------------------------------------------------------------------------------------------------ Life with Louie Animated: 26 half-hour U.S. and Canada Perpetuity episodes (U.S. video release subject to Fox Kids Network holdbacks) - ------------------------------------------------------------------------------------------------------------------------------------ Littl' Bits Animated: 26 half-hour U.S. and Canada Expires episodes 2/12/2000 - ------------------------------------------------------------------------------------------------------------------------------------ Little Mermaid, Saban's Animated: 26 half-hour U.S. and Canada Perpetuity Adventures of The episodes - ------------------------------------------------------------------------------------------------------------------------------------ Little Mouse on the Prairie, animated: 26 half-hour U.S. and Canada Perpetuity Saban's episodes - ------------------------------------------------------------------------------------------------------------------------------------ Little Shop Animated: 13 half-hour U.S. and Canada Perpetuity episodes - ------------------------------------------------------------------------------------------------------------------------------------ M.A.S.K. Animated: 75 half-hour Canada only Expires episodes 4/20/2009 - ------------------------------------------------------------------------------------------------------------------------------------ Macron 1 Animated: 26 half-hour U.S. and Canada Expires episodes 4/9/2005 - ------------------------------------------------------------------------------------------------------------------------------------ Mad Scientist Toon Club Live action and animated: 52 U.S. and Canada Expires (consisting of cartoons and one-hour episodes (Note: 10/07/2002 Live action segments) animation is Tic Tac Toons and rights in Mad Scientist Toon Club are subject to those rights) - ------------------------------------------------------------------------------------------------------------------------------------
-4-
==================================================================================================================================== TITLE TYPE AND QUANTITY TERRITORIES TERM - ------------------------------------------------------------------------------------------------------------------------------------ Mad Scientist Toon Club Live-action: 120 two-and- U.S. and Canada Perpetuity a/k/a Mad Scientist Kids one-half minute to four-minute Club (Live action segments segments only) - ------------------------------------------------------------------------------------------------------------------------------------ Magic Troll and the Troll Animated: 1 half-hour pilot Canada only TBD Warriors - ------------------------------------------------------------------------------------------------------------------------------------ Masked Rider Live Action: 53 half-hour U.S. and Canada Expires episodes 9/29/2005 - ------------------------------------------------------------------------------------------------------------------------------------ Maxie's World Animated: 16 half-hour Canada only Expires episodes 12/19/2010 - ------------------------------------------------------------------------------------------------------------------------------------ Maya the Bee Animated: 65 half-hour U.S. and Canada Expires episodes 12/30/1999 - ------------------------------------------------------------------------------------------------------------------------------------ Michel Vaillant (a/k/a Animated: 65 half-hour U.S. and Canada TBD Heroes on Hot Wheels) episodes - ------------------------------------------------------------------------------------------------------------------------------------ Mighty Morphin Power Live action: 200 half-hour U.S. and Canada Perpetuity Rangers (a/k/a Power episodes Rangers ZEO as of 4th season) - ------------------------------------------------------------------------------------------------------------------------------------ New Archies, The Animated: 13 half-hour Canada only Expires episodes 5/23/2009 - ------------------------------------------------------------------------------------------------------------------------------------ Noozles (a/k/a Brinky and Animated: 26 half-hour U.S. and Canada Expires Printy) episodes 12/7/2004 - ------------------------------------------------------------------------------------------------------------------------------------ Ox Tales Animated: 52 half-hour U.S. and Canada U.S. expires episodes (also available as 5/27/2008; 104 twelve minute episodes) Canada expires 5/27/2005 - ------------------------------------------------------------------------------------------------------------------------------------ Panda Patrol (a/k/a Jin-Jin Animated: 26 half-hour U.S. and Canada Perpetuity and the Panda Patrol) episodes - ------------------------------------------------------------------------------------------------------------------------------------ Peter Pan and the Pirates, Animated: TBD U.S. and Canada Perpetuity Fox's - ------------------------------------------------------------------------------------------------------------------------------------ Piggsburgh Pigs Animated: 13 half-hour TBD Perpetuity episodes - ------------------------------------------------------------------------------------------------------------------------------------ Pinocchio, Adventures of Animated: 52 half-hour U.S. and Canada Expires episodes 9/12/1999 - ------------------------------------------------------------------------------------------------------------------------------------ Pip 'N Squeek (a/k/a Shuke Animated: 13 half-hour U.S. and Canada Expires and Beita) episodes 10/31/2022 - ------------------------------------------------------------------------------------------------------------------------------------ Pole Position Animated: 13 half-hour Canada only Expires episodes 9/20/2009 - ------------------------------------------------------------------------------------------------------------------------------------ Red Planet Animated: TBD U.S. and Canada Perpetuity - ------------------------------------------------------------------------------------------------------------------------------------
-5-
==================================================================================================================================== TITLE TYPE AND QUANTITY TERRITORIES TERM - ------------------------------------------------------------------------------------------------------------------------------------ Rimba's Island Animated: TBD U.S. and Canada Expires 10 years after last season in which Fox Kids Network orders last new episodes - ------------------------------------------------------------------------------------------------------------------------------------ Ring Raiders Animated: 5 half-hour Canada Only Perpetuity episodes - ------------------------------------------------------------------------------------------------------------------------------------ Rock 'N Cop Animated: 50 half-hour Canada only (double Expires episodes check) 2/27/2001 - ------------------------------------------------------------------------------------------------------------------------------------ Samurai Pizza Cats Animated: 52 half-hour U.S. and Canada Expires episodes 11/12/2000 - ------------------------------------------------------------------------------------------------------------------------------------ Shadow Strikers Animated: 2 half-hour Canada only Perpetuity episodes - ------------------------------------------------------------------------------------------------------------------------------------ Siegfried and Roy Animated: TBD U.S. and Canada Expires 5 years (U.S. video release after delivery of subject to Fox Kids last new Network holdbacks) episode ordered by Fox Kids Network - ------------------------------------------------------------------------------------------------------------------------------------ Sophie and Virginie Animated: 52 half-hour U.S. and Canada TBD episodes - ------------------------------------------------------------------------------------------------------------------------------------ Space Cats Animated: 13 half-hour Canada only Perpetuity episodes - ------------------------------------------------------------------------------------------------------------------------------------ Spoof Toons (a/k/a Walter Animated: 26 half-hour U.S. and Canada Perpetuity Melon) episodes - ------------------------------------------------------------------------------------------------------------------------------------ Starcom Animated: 13 half-hour Canada only Expires episodes 4/20/2009 - ------------------------------------------------------------------------------------------------------------------------------------ Super Mario Bros. Super Animated: 65 half-hour Canada only Expires Show!, The episodes (including 13 Legend 12/6/2010 of Zelda episodes) - ------------------------------------------------------------------------------------------------------------------------------------ Sweet Valley High, Francine Live action: 88 half-hour U.S. and Canada Perpetuity Pascal's episodes - ------------------------------------------------------------------------------------------------------------------------------------ Sylvanian Families Animated: 13 half-hour Canada only Expires episodes 4/20/2009 - ------------------------------------------------------------------------------------------------------------------------------------ Tenko and the Guardians of Animated with short live U.S. And Canada Perpetuity the Magic action wraparounds: 13 half- hour episodes - ------------------------------------------------------------------------------------------------------------------------------------ Three Little Ghosts Animated: 50 half-hour U.S. and Canada Expires episodes 12/17/2001 - ------------------------------------------------------------------------------------------------------------------------------------
-6-
==================================================================================================================================== TITLE TYPE AND QUANTITY TERRITORIES TERM - ------------------------------------------------------------------------------------------------------------------------------------ Tic Tac Toons (consisting of Animated: 65 episodes, U.S. and Canada Expires Hyppo and Thomas and consisting of 300 two-and- 10/7/2002 Tamagon the Counselor) one-half minute segments of Hyppo and 195 two-and-one-half minute segments of Tamagon - ------------------------------------------------------------------------------------------------------------------------------------ Tick The animated: TBD U.S. and Canada Perpetuity (U.S. video release subject to Fox Kids Network holdbacks) - ------------------------------------------------------------------------------------------------------------------------------------ Twins of Destiny Animated: 52 half-hour U.S. and Canada TBD episodes - ------------------------------------------------------------------------------------------------------------------------------------ Ulysses 31 Animated: 26 half-hour Canada only Expires episodes 4/20/2009 - ------------------------------------------------------------------------------------------------------------------------------------ Video Power Animated and live action: 40 Canada only Perpetuity half-hour episodes - ------------------------------------------------------------------------------------------------------------------------------------ VR Troopers, Saban's Live action: 92 half-hour U.S. and Canada Expires episodes 9/9/1999 - ------------------------------------------------------------------------------------------------------------------------------------ Where on Earth Is Carmen Animated: 40 half-hour Canada only Perpetuity Sandiego? episodes - ------------------------------------------------------------------------------------------------------------------------------------ Why-Why Family, The Animated: 130 three-and- U.S. and Canada Perpetuity one-half minute segments - ------------------------------------------------------------------------------------------------------------------------------------ Willow Town Animated: 23 half-hour U.S. and Canada Expires episodes (the episodes (excluding the 8/1/2008 entitled "The Wind in The Province of Quebec) Willows", "The Adventures Of Mr. Toad", and "Great Country Picnic" are not included) - ------------------------------------------------------------------------------------------------------------------------------------ Wowser Animated: 52 half-hour U.S. and Canada Expires episodes 4/23/2004 - ------------------------------------------------------------------------------------------------------------------------------------ Zazoo U Live action: TBD U.S. and Canada Perpetuity (U.S. video release subject to Fox Kids Network holdbacks) - ------------------------------------------------------------------------------------------------------------------------------------ Zoobilee Zoo Live action: 65 half-hour Canada only Expires episodes 4/20/2009 ==================================================================================================================================
-7- EXHIBIT "B" ----------- DELIVERY REQUIREMENTS/HOME VIDEO DISTRIBUTION RIGHTS/MULTIPLE TERRITORIES Exhibit "B" to the Home Video Rights Acquisition Agreement ("MAIN AGREEMENT") and Standard Terms and Conditions ("STANDARD TERMS") and forming part of the Home Video Rights Acquisition Agreement dated as of August 8, 1996 between TWENTIETH CENTURY FOX HOME ENTERTAINMENT, INC. ("FOX"), on the one hand, and SABAN ENTERTAINMENT, INC. and VENTURA FILM DISTRIBUTORS, B.V. (collectively, "SABAN"), on the other hand. Delivery Items: Delivery with respect to each Program listed in Paragraph 3. of - -------------- the Main Agreement shall consist of Saban making physical delivery of the items set forth herein with respect to the Program ("DELIVERY ITEMS"), in accordance with the standards set forth herein and/or in the Standard Terms with respect to the applicable Delivery Item. If no standard is set forth with respect to a particular Delivery Item, then such Delivery Item shall be the best quality available from existing materials and acceptable in form, substance and/or content to the reasonable satisfaction of the appropriate personnel of Fox or Fox's designee. Delivery shall be made to such locations ("DELIVERY LOCATIONS") as hereinafter designated or as Fox shall otherwise designate. Delivery of the Program shall be accompanied by a list showing which items are in which containers. THE LEGAL DEPARTMENT AND TECHNICAL SERVICES MUST BE COPIED ON ALL TRANSMITTAL LETTERS FOR DELIVERY ITEMS. If applicable under the Main Agreement and/or the Standard Terms, the Delivery Items preceded by an asterisk ("*") are "BASIC DELIVERY ITEMS", and the Delivery Items preceded by a double asterisk ("**") are "NON-BASIC DELIVERY ITEMS". 1. Delivery Locations: ------------------ (a) "ADVERTISING & PUBLICITY": (If by Mail) Fox, P.O. Box 900, Beverly ------------------------- Hills, California 90213. (If by Messenger) Fox, 2121 Avenue of the Stars, Suite 2500, Los Angeles, California 90067. In both cases, attention: Libby Statham (if the Distribution Territory includes Territories outside the United States) and/or Evelyn Gray (if the Distribution Territory includes the United States). (b) "LEGAL DEPARTMENT": (If by Mail) Twentieth Century Fox Film ------------------ Corporation, P.O. Box 900, Beverly Hills, California 90213. (If by Messenger) Twentieth Century Fox Film Corporation, 2121 Avenue of the Stars, Suite 1300, Los Angeles, California 90067. In both cases, attention: Ron Wheeler. (c) "MUSIC DEPARTMENT": (If by Mail) Twentieth Century Fox Film ------------------ Corporation, P.O. Box 900, Beverly Hills, California 90213. (If by Messenger) Twentieth Century Fox Film Corporation, 2121 Avenue of the Stars, Suite 1300, Los Angeles, California 90067. In both cases, attention: Tom Cavanaugh. (d) "RISK MANAGEMENT": (If by Mail) Twentieth Century Fox Film ----------------- Corporation, Treasury Department, P.O. Box 900, Beverly Hills, California 90213. (If by Messenger) Twentieth Century Fox Film Corporation, Treasury Department, 10201 West Pico Boulevard, Los Angeles, California 90035. In both cases, attention: Michelle Darringer. (e) "TALENT ADMINISTRATION": (If by Mail) Twentieth Century Fox Film ----------------------- Corporation, P.O. Box 900, Beverly Hills, California 90213. (If by Messenger) Twentieth Century Fox Film Corporation, 2121 Avenue of the Stars, Suite 1300, Los Angeles, California 90067. In both cases, attention: Margaret -1- Reeves. (f) "TECHNICAL SERVICES": (If by Mail) Fox, P.O. Box 900, Beverly Hills, -------------------- California 90213. (If by Messenger) Fox, 2121 Avenue of the Stars, Suite 2500, Los Angeles, California 90067. In both cases, attention: Steve Cantos (if the Distribution Territory includes Territories outside the United States and Canada) and/or Virginia Cheung (if the Distribution Territory includes the United States and Canada). (g) "VIDEOTAPE OPERATIONS": (If by Mail or Messenger) Fox, 1546 North ---------------------- Argyle Avenue, Hollywood, California 90028, Attention: Francis Gyermek. 2. Program Items: (Deliver to Videotape Operations) ------------- (a) MASTERS: ------- * (i) Reproduction Masters: -------------------- (A) Format: One D1 first generation videotape in the original ------ language version and in the NTSC format ("REPRODUCTION MASTER"). A Reproduction Master shall not be a conversion from another format, shall be a 3:4 aspect ratio version, shall be prepared from film elements if such elements exist, shall include textless background footage for the main and end titles and all scenes of the Program that contain text (if available), and shall be without defects as determined by Fox. If no D1 first generation videotape and no film elements exist, and the Program was initially released for Television Exhibition in the United States, then a Reproduction Master may be a second generation D2 videotape created from the highest quality available video source (e.g., another second generation D2 videotape, any other digital videotape, the original first generation 1" videotape recording master, or BetacamSP videotape). (B) Music and Effects/Stereo: Each Reproduction Master shall ------------------------ contain a separate music and effects track on each of channels 3 and 4. If the Program was originally produced in stereo, then the Reproduction Master shall be prepared with the same stereo elements. (C) Conformity to Previously Released Version: Each Reproduction ----------------------------------------- Master shall conform, to the best of Saban's knowledge, to the final edited version of the Program as initially released for Theatrical Distribution in the United States or the country in which photographed, as Fox shall designate (or if not so released, then as released in the medium of initial release including any available additional footage, if applicable), and in the same ratio of camera aperture images in which the Program was photographed. (D) Dubbing/Subtitling: If the Program was originally produced ------------------ in a language other than English and will or may be distributed in English under the Main Agreement, then Saban shall prepare and deliver either a dubbed or subtitled version (at Fox's option) of the Program and of the completed trailer and such English dubbed or subtitled version shall be complete with the main credits, narrative and end titles in English. If the Program was originally produced in English or a language other than English and will or may be distributed in one or more different -2- language(s) (other than English) under the Main Agreement, then Saban shall deliver to Fox any and all existing dubbed and/or subtitled version(s) in Saban's possession or control in the applicable language(s) and shall also, reasonably in advance of the applicable Initial Video Release Date(s), either (1) make available to Fox all elements necessary to prepare the applicable language version(s), or (2) prepare and deliver to Fox the applicable language version(s). If Fox prepares the applicable language version(s), the cost of such preparation will either be a Home Video Expense under the Main Agreement (if applicable), or will be billed to Saban. * (ii) Magnetic Soundtrack: One 35mm 2-track Dolby Stereo or Dolby ------------------- Spectral Recording magnetic sound master which shall be fully mixed and equalized and conform in all respects to each Reproduction Master. * (iii) International Soundtrack: Intentionally omitted. ------------------------ ** (iv) Optical Disc Master: Intentionally omitted. ------------------- (b) Film and Soundtrack Elements: If a Reproduction Master is unavailable ---------------------------- or unacceptable as determined by Fox, then Saban shall do one of the following: (i) prepare and deliver to Fox a Reproduction Master acceptable to Fox, (ii deliver to Fox the film elements, magnetic soundtracks and titles (as set forth in SCHEDULE "B-1" attached hereto) Fox determines are necessary in order for Fox to create a Reproduction Master ("SCHEDULE B-1 MATERIALS"), or (ii loan to Fox Schedule B-1 Materials for a period of not less than 90 days and provide Fox with access to Schedule B-1 Materials for the remainder of the Distribution Term for the Program. If Fox creates a Reproduction Master from the Schedule B-1 Materials, the cost of such creation will either be a Home Video Expense under the Main Agreement (if applicable), or will be billed to Saban. *3. Trailers: (Deliver to Videotape Operations) -------- If available, one or more completed trailers of the Program, conforming to the requirements of Program Items pursuant to Paragraph 2. 4. Documentation: ------------- (a) Music Items: (Deliver to Music Department) ----------- * (i) Music Cue Sheets: One copy of a music cue sheet showing the ---------------- particulars of all music contained in the Program and any completed trailers delivered hereunder, including the title of each composition; the names of composers, publishers and copyright owners; the usages (whether instrumental, instrumental-visual, vocal, vocal-visual or otherwise); the place of each composition showing the film footage and running time for each cue; the performing rights society involved and any other information customarily set forth in music cue sheets. ** (ii) Music Contracts/Licenses/Assignments: One copy of each of the ------------------------------------ contracts, licenses, license confirmation letters or assignments conveying to Saban the right to use the music, lyrics or recordings, as applicable, in the Program, in whole or part, in all media now known or hereafter devised, throughout the universe in perpetuity without payment of any further compensation for the grant of such rights and including the right to use the music, lyrics or recordings, as applicable, in connection with the advertising, promotion and publicity of the -3- Program, in or out of context of the Program subject only to payment of fees to applicable performing rights societies. ** (b) Continuity: (Deliver to Technical Services) ---------- One typewritten copy in the English language of a detailed, final dialogue and action continuity of the Program containing all dialogue, narration and song vocals, as well as a cut by cut description of the Program action, conformed to the Reproduction Master together with a spotting list in the English language giving spot numbers for each subtitle, the footage at the start and end of each subtitle, indication of which character is speaking and to whom they are speaking and the text. * (c) MPAA: (Deliver to Legal Department) ----- (i) Certificate: If available, a certificate evidencing a rating from ----------- the Motion Program Association of America, Inc. ("MPAA") Code and Rating Administration which is not more restrictive than that specified in the Main Agreement, and written acknowledgement of the MPAA that all of its charges in connection with the Program have been paid. If an MPAA certificate is unavailable, upon request of Fox, Saban shall deliver to Fox all materials necessary for Fox to obtain such a certificate. If Fox obtains such a certificate, the cost thereof will either be a Home Video Expense under the Main Agreement (if applicable), or will be billed to Saban. (ii) Title Registration: If available, evidence that the title of ------------------ the Program has been registered under the rules of the MPAA Title Registration Bureau and that pursuant to such registration procedures, Saban has the right to use the title of the Program. If such evidence of registration is unavailable, upon request of Fox, Saban shall deliver to Fox all materials necessary for Fox to obtain such registration. If Fox obtains such registration, the cost thereof will either be a Home Video Expense under the Main Agreement (if applicable), or will be billed to Saban. * (d) Copyright Information: (Deliver to Legal Department) --------------------- The appropriate copyright notice and, if available, a renewal date relating to the Program, and, upon request of Fox, copies of all copyright registrations or filings for such copyright registrations if registration has not yet been received by Saban and assignments of copyright pertaining to the Program. * (e) Chain-of-Title Documents: (Deliver to Legal Department) ------------------------ One copy of all instruments or contracts covering the acquisition of literary, dramatic, music and other works and materials of whatever nature upon which the Program may be based and/or used in the production of the Program, including, but not limited to, copyright and title search reports, and publisher and individual releases. ** (f) Contracts: (Deliver to Legal Department) --------- Intentionally omitted. * (g) E & 0 Insurance: (Deliver to Risk Management) --------------- -4- The certificate of insurance and all certificates and amendments relating to the Policy which are required pursuant to the Standard Terms. * (h) Country of Origin Information: (Deliver to Advertising & Publicity) ----------------------------- If the Distribution Territory includes Argentina, Italy, Mexico, Portugal and/or Spain, Saban shall provide all information requested by Fox's Fact Sheet for Certificates of Origin. * (i) Other Restrictions: (Deliver to Legal Department) ------------------ A summary of all other contractual or other legal limitations on Home Video Distribution and/or Home Video Exhibition of the Program, including any restrictions as to the dubbing of the voice of any player including dubbing dialogue in a language other than the language in which the Program was recorded. 5. Credit Items: (Deliver to Talent Administration) ------------ * (a) Credit; Statement: A statement of credits applicable to the Program ----------------- ("CREDIT STATEMENT") setting forth the names and credit obligations of Saban with regard to all persons to whom Saban is contractually obligated to accord credit on the screen, in any paid advertising and on videocassette packages. The credits set forth on the Credit Statement shall conform in every instance to the standard credit requirements of Fox. The Credit Statement shall be signed and acknowledged as accurate by the individual producer(s) of the Program and by Saban's production counsel. ** (b) Cast and Crew: A list of the characters portrayed in the Program and, ------------- upon Fox's written request, when reasonably required under the circumstances, all technical personnel involved in the production of the Program. * (c) Titles: A list of the main and end title credits of the Program, a ------ copy of the actual credit block and title treatment. * (d) Paid Advertising Requirements: A copy of the paid advertising ----------------------------- requirements for the Program ("PAID ADVERTISING REQUIREMENTS"), including a top sheet which indicates the exact placement, wording and size of each paid advertising credit, and a summary of all contractual and likeness requirements with respect to paid advertising. The Paid Advertising Requirements shall be signed and acknowledged as accurate by the individual producer(s) of the Program and by Saban's production counsel. 6. Publicity end Advertising Materials: (Deliver to Advertising & Publicity) ----------------------------------- * (a) Stills: One positive print and a duplicate negative of a reasonable ------ number of different black and white still photographs, or, at Fox's reasonable election, access to such black and white negatives at a mutually agreed upon photo laboratory, and color transparencies of a reasonable number of different color still photographs, depicting scenes and principal members of the cast of the Program. Immediately upon request of Fox, Saban shall use its reasonable best efforts to identify the persons and events depicted in any such photograph. Each photograph shall be suitable for reproduction for advertising and publicity purposes and shall be approved by all Parties which have a right to approve such stills or transparencies. ** (b) Biographical Information: A biography (approved, if contractually ------------------------ required, by the subject of the biography) of each of the principal players, individual producer(s), director and, upon the request -5- of Fox, if available a biography of the writers and of each of the key technical personnel; provided, however, that if guild requirements or other applicable Law requires a writer biography, then Saban shall so provide. * (c) Synopsis: A brief synopsis in the English language of the story of -------- the Program. * (d) Advertising Materials: Copies of all English-language and non- --------------------- English-language advertisements, paper accessories and other advertising materials, if any, prepared by Saban or, if Saban has access, by any other party in connection with the Program, including samples of one-sheet posters and individual advertising art elements and transparencies necessary to make proofs thereof, television and radio spots and the individual elements necessary to make duplicates thereof, and electronic and print press kits if available. END OF EXHIBIT "B" DELIVERY REQUIREMENTS/HOME VIDEO DISTRIBUTION RIGHTS/MULTIPLE TERRITORIES -6- SCHEDULE "B-1" TO EXHIBIT "B" ----------------------------- 1. FILM ELEMENTS: ------------- (a) Programs Produced in the English Language: One of the film elements ----------------------------------------- set forth in this Paragraph 1, without subtitles, in the following order of priority from the best quality available from existing materials and created at a first-class laboratory designated by Fox: (i) A 16mm Inter-Positive ("IP") made from the original cut negative ("OCN"), and a 16mm "screening" print to be used for timing comparison purposes. (ii) A 16mm Inter-Negative ("IN") made from an IP made from the OCN, and a 16mm "screening" print to be used for timing comparison purposes. (iii) If the print elements specified in subparagraphs (i) and (ii) are not available, or if Fox reasonably determines (i.e. consistent ---- with Fox's usual standards) that they are not of sufficient quality for a videotape transfer to be used in the manufacture of videocassettes: (A) A 16mm wet-gate composite low-contrast print made from an OCN, printed on Eastman #5380 filmstock and graded (timed) for television projection; or (B) A 16mm new composite wet-gate "show" print from OCN printed on Eastman #5384 filmstock; or (C) A 16mm new composite "show" print made from an IN and printed on Eastman #5384 filmstock. (b) Programs Produced in Language Other Than English: If the Program was ------------------------------------------------ produced in a language other than English, in part or whole, a 16mm high contrast black and white positive or negative subtitle only reel in perfect synchronization with photographic action to the Reproduction Master and film elements. 2. MAGNETIC SOUNDTRACKS: If available, one 16mm magnetic film sound track for -------------------- the Program ("SOUNDTRACK") in the English Language in the following order of priority from the best quality available from existing materials, fully recorded and in perfect synchronization with photographic action to the Reproduction Master and film elements, including at least 30 seconds of "pink noise" on the head of at least one reel recorded at the time the Soundtrack was manufactured, as follows: (a) If the Program exists with stereophonic sound: (i) A 2-track Dolby matrix encoded magnetic sound master, or if (i) is not available, then (ii) (ii) A standard 4-track magnetic sound master that includes left, center, right, and surround ("LCRS") signals. AND (iii) A 4-track music and effects only magnetic sound master that includes LCRS signals; or -1- (iv) A 2-track dolby matrix encoded magnetic stereo music and effects sound master; and/or (v) The MED 3 or 4-track monaural magnetic sound master that is Dolby encoded (which includes any "sweetener" tracks generated for dubbing in languages other than English). (b) If the Program does not exist in stereophonic sound: (i) The MED 3 or 4--track monaural magnetic sound master that is Dolby encoded (which includes any "sweetener" tracks generated for dubbing in languages other than English), or if (i) is not available then (ii); (ii) A monaural composite of the MED magnetic sound master that is Dolby encoded, or if (ii) is not available then (iii); (iii) A monaural composite positive optical track printed on black and white print stock in the original optical format (i.e. variable area or variable density). All Soundtracks that are Dolby encoded shall include at least 30 seconds of "Dolby set level tone" at the head of each reel. 3. TITLES: One each of the 16mm, if available, or video main credits and end ------ titles in each language of the Distribution Territory, provided that if the Program is in the English language, Saban shall provide such main credits and end titles upon request of Fox. If Saban does not possess rights of Theatrical Exhibition in the Distribution Territory, Saban shall use its best efforts to supply to Fox in a timely manner the items required pursuant to this Paragraph 3. END OF SCHEDULE "B-1" TO EXHIBIT "B" -2- EXHIBIT "C" ----------- FORM OF LABORATORY ACCESS LETTER ______________,199__ ___________________________ ___________________________ ___________________________ ___________________________ Re: SABAN ENTERTAINMENT, INC./VENTURA FILM DISTRIBUTORS, B.V. Ladies and Gentlemen: 1. PROGRAMS: This Laboratory Access Letter relates to the following Motion -------- Pictures (each a "PROGRAM" and collectively, "PROGRAMS"): ________________________________ ________________________________ ________________________________ ________________________________ ________________________________ ________________________________ 2. TERRITORY/LICENSE PERIOD: With respect to the Programs referred to in ------------------------ Paragraph 1. above, each of the undersigned, SABAN ENTERTAINMENT, INC. and VENTURA FILM DISTRIBUTORS, B.V. (collectively, "SABAN"), has granted an exclusive license to TWENTIETH CENTURY FOX HOME ENTERTAINMENT, INC. ("FOX") to exercise all rights of Home Video Distribution and Home Video Exhibition, as provided in the Home Video Rights Acquisition Agreement dated as of August 8, 1996 ("AGREEMENT") between Saban and Fox. With respect to each Program, Saban has granted Fox the Distribution Rights for such Program in the Distribution Territory for the period beginning as provided in the Agreement and ending [September 10, 2003] [September 10, 2005]. Except where indicated above, the "DISTRIBUTION TERRITORY" for each Program is the United States and Canada. All terms used herein but not defined herein shall have the meaning for such terms as set forth in the Agreement. 3. MATERIALS: During the entire Distribution Period for the Distribution --------- Rights for each Program, Laboratory hereby acknowledges receipt of one complete set of all pre-Master materials pertaining to such Program and any trailers thereof ("TRAILERS") (collectively, "MATERIALS") necessary for the manufacture therefrom of commercially acceptable English language Masters and Spanish- language dubbed and subtitled versions thereof, if any. Laboratory further acknowledges that the Materials are of standard commercial quality and suitable for making commercially acceptable Masters and dubbed and subtitled versions of the Program. Laboratory shall hold the Materials at Laboratory's premises, and Laboratory shall notify Saban and Fox in writing before moving the Materials or any of them to another facility. If the Materials are moved to another facility, then Saban shall grant Fox access to the Materials at such other facility on the same terms and conditions as this Laboratory Access Letter. -1- 4. ORDERS: This will authorize, direct and instruct Laboratory during the ------ License Period for each Program to fill all orders from Fox or its designees only to carry out the purpose of the Agreement for pre-Master materials pertaining to such Program or other materials for the Program or any Trailers, and any replacements thereof, and any other laboratory work for the Program and any Trailers, with all costs and charges related thereto to be charged to Fox. Laboratory agrees not to look to Saban nor assert any claim or lien, statutory or otherwise, against Saban or Saban's property or any materials pertaining to the Program held by Laboratory by reason of any obligation of Fox or any work, labor, service or material which Laboratory may perform or furnish to Fox or its designees. 5. IRREVOCABILITY: The instructions, authorizations and directions herein -------------- contained in favor of Fox are being relied on by Fox and are coupled with an interest and may not be revoked, rescinded or in any way modified during the License Period for any Program without the written consent of Fox. 6. SABAN ORDERS: Laboratory agrees to fill all orders of Saban and Saban's ------------ designees for pre-Master materials pertaining to such Program or other materials for the Program and any Trailers at the sole cost and expense of Saban, subject to proper credit arrangements being made. Laboratory agrees that Laboratory will not look to Fox and will not assert any claim or lien, statutory or otherwise, against Fox by reason of any obligation owed to Laboratory for any work, labor, material or service which Laboratory may perform or furnish to Saban or any Party other than Fox or its designees. 7. LABORATORY ACKNOWLEDGMENT: By signing in the space provided below, ------------------------- Laboratory agrees that Laboratory will fill all orders from Saban or Fox, as the case may be, in accordance with the authority granted herein without regard to any liability or obligation to Laboratory of any Party other than the Party which shall have placed file order and shall be bound by the foregoing instructions and directions. Laboratory further acknowledges that with respect to each Program and any Trailers thereof, Laboratory presently holds or will hold hereunder Materials which are or will be all of at least standard commercial quality and suitable for making commercially acceptable English language Masters of the Program and any Trailers and dubbed and subtitled versions thereof. By signing in the spaces provided below, the signatories agree to all of the terms and conditions set forth herein. Very truly yours, SABAN ENTERTAINMENT, INC. By -------------------------------- Its and VENTURA FILM DISTRIBUTORS, B.V. By -------------------------------- Its (collectively, "SABAN") ACKNOWLEDGED AND AGREED TO: -2- -------------------------------- ("LABORATORY") By -------------------------------- Its CONFIRMED: TWENTIETH CENTURY FOX HOME ENTERTAINMENT, INC. ("FOX") By -------------------------------- Its -3- EXHIBIT "D-1" ------------- FORM OF EXCLUSIVE LICENSE For good and valuable consideration, SABAN ENTERTAINMENT, INC. ("SEI") does hereby license and convey to TWENTIETH CENTURY FOX HOME ENTERTAINMENT, INC. ("FOX"), P.O. Box 900, Beverly Hills, California 90213, under the copyright laws of the United States of America and the laws of the countries constituting the "Distribution Territory", the exclusive right to distribute the Motion Picture hereinafter designated "Program" in the "Distribution Territory" for the "License Period" and for the "Media", all as hereinafter specified. a. "PROGRAM": The Motion Picture entitled ______________________________ --------- b. "DISTRIBUTION TERRITORY": The Distribution Territory shall consist of ------------------------ the U.S. Territory and the Canadian Territory. The "U.S. TERRITORY" shall mean the United States, its territories and possessions, but excluding Puerto Rico. The "CANADIAN TERRITORY" shall mean the Dominion of Canada, and its territories and possessions. c. "LICENSE PERIOD": With respect to the rights of Home Video ---------------- Distribution and Home Video Exhibition, the "LICENSE PERIOD" for such Distribution Rights shall be for the period beginning , 199__ and ending __________________________, 200__. d. "MEDIA": The exclusive right of Home Video Distribution in all forms ------- of Cassettes now known or hereafter devised. The Program was registered in the United States Copyright Office under the title "______________" by registry number ___________________ with the effective registration date of ____________________________. -1- This license is executed in accordance with a Home Video Rights Acquisition Agreement ("MAIN AGREEMENT") dated as of August 8, 1996 between the undersigned and Fox and is subject to the terms and conditions of such Main Agreement. IN WITNESS WHEREOF, the undersigned has executed this license by its duly authorized officer on the ____________ day of ___________________, 199__. SABAN ENTERTAINMENT, INC. By -------------------------------- Its State of ________________) ) ss County of________________) On ____________________ before me, ________________________________________, (Date) (Name of Notary) personally appeared __________________________________________, (Name and Title of Signer) personally known to me (or proved to me on the basis of is satisfactory evidence) to be the person(s) whose name(s) is/are subscribed to the within instrument and acknowledged to me that be/she/they executed the same in his/her/their authorized capacity(ies), and that by his/her/their signature(s) on the instrument the person(s), or the entity upon behalf of which the person(s) acted, executed the instrument. WITNESS my hand and official seal. Signature______________________________________(Seal) -2- EXHIBIT "D-2" ------------- FORM OF EXCLUSIVE GRANT OF RIGHTS For good and valuable consideration, VENTURA FILM DISTRIBUTORS, B.V. ("VENTURA") does hereby grant and convey to TWENTIETH CENTURY FOX HOME ENTERTAINMENT, INC. ("FOX"), P.O. Box 900, Beverly Hills, California 90213, under the copyright laws of the United States of America and the laws of the countries constituting the "Distribution Territory", the exclusive right to distribute the Motion Picture hereinafter designated "Program" in the "Distribution Territory" for the "Grant Period" and for the "Media", all as hereinafter specified. a. "PROGRAM": The Motion Picture entitled _____________________________ --------- b. "DISTRIBUTION TERRITORY": The Distribution Territory shall consist of ------------------------ the U.S. Territory and the Canadian Territory. The "U.S. TERRITORY" shall mean the United States, its territories and possessions, but excluding Puerto Rico. The "CANADIAN TERRITORY" shall mean the Dominion of Canada, and its territories and possessions. c. "GRANT PERIOD": With respect to the rights of Home Video Distribution -------------- and Home Video Exhibition, the "Grant Period" for such Distribution Rights shall be for the period beginning , 199__ and ending ______________, 200__. d. "MEDIA": The exclusive right of Home Video Distribution in all forms ------- of Cassettes now known or hereafter devised. The Program was registered in the United States Copyright Office under the title "_____________" by registry number ___________________ with the effective registration date of _______________________________. -1- This grant is executed in accordance with a Home Video Rights Acquisition Agreement ("MAIN AGREEMENT") dated as of August 8, 1996 between the undersigned and Fox and is subject to the terms and conditions of such Main Agreement. IN WITNESS WHEREOF, the undersigned has executed this license by its duly authorized officer on the ____________ day of ________________________ , 199__. VENTURA FILM DISTRIBUTORS, B.V. By_____________________________ Its State of_________________) ) ss County of________________) On __________________before me,__________________________________________, (Date) (Name of Notary) personally appeared _____________________________________________________, (Name and Title of Signer) personally known to me (or proved to me on the basis of is satisfactory evidence) to be the person(s) whose name(s) is/are subscribed to the within instrument and acknowledged to me that be/she/they executed the same in his/her/their authorized capacity(ies), and that by his/her/their signature(s) on the instrument the person(s), or the entity upon behalf of which the person(s) acted, executed the instrument. WITNESS my hand and official seal. Signature______________________________(Seal) -2- EX-10.31 3 SECOND AMENDED AND RESTATED CREDIT AGREEMENT Portions of this exhibit have been deleted and filed separately with the Securities and Exchange Commission pursuant to a request for confidential treatment. The redacted portions are identified by brackets with the character "*" indicating deleted information. [*] CONFIDENTIAL TREATMENT REQUESTED EXHIBIT 10.31 ================================================================================ $710,000,000 SECOND AMENDED AND RESTATED CREDIT AGREEMENT DATED AS OF OCTOBER 28, 1997 Among FCN HOLDING, INC., INTERNATIONAL FAMILY ENTERTAINMENT, INC. and SABAN ENTERTAINMENT, INC., as Borrowers, -- --------- and FOX KIDS HOLDINGS, LLC, as a Guarantor, -- - --------- and THE INITIAL LENDERS NAMED HEREIN, as Initial Lenders, -- ------- ------- and CITICORP USA, INC., as Administrative Agent, -- -------------- ----- and CITICORP SECURITIES, INC., CHASE SECURITIES, INC. AND BANKBOSTON, N.A., as Co-Arrangers -- ------------ ================================================================================ TABLE OF CONTENTS
PAGE ARTICLE I DEFINITIONS AND ACCOUNTING TERMS SECTION 1.01. Certain Defined Terms..................................... 2 SECTION 1.02. Computation of Time Periods............................... 45 SECTION 1.03. Accounting Terms.......................................... 45 SECTION 1.04. Currency Equivalents Generally............................ 46 ARTICLE II AMOUNTS AND TERMS OF THE ADVANCES SECTION 2.01. The Advances.............................................. 46 SECTION 2.02. Making the Advances....................................... 47 SECTION 2.03. Repayment of Advances..................................... 49 SECTION 2.04. Termination or Reduction of the Commitments............... 50 SECTION 2.05. Prepayments............................................... 52 SECTION 2.06. Interest on Advances...................................... 54 SECTION 2.07. Fees...................................................... 55 SECTION 2.08. Conversion of Advances.................................... 55 SECTION 2.09. Increased Costs, Etc...................................... 57 SECTION 2.10. Payments and Computations................................. 59 SECTION 2.11. Taxes..................................................... 62 SECTION 2.12. Sharing of Payments, Etc.................................. 65 SECTION 2.13. Defaulting Lenders........................................ 66 SECTION 2.14. Use of Proceeds........................................... 68 ARTICLE III CONDITIONS OF LENDING SECTION 3.01. Conditions Precedent to Effectiveness of this Agreement... 68 SECTION 3.02. Conditions Precedent to Each Borrowing.................... 74 SECTION 3.03. Determinations Under Section 3.01......................... 75 ARTICLE IV REPRESENTATIONS AND WARRANTIES SECTION 4.01. Representations and Warranties............................ 75
ARTICLE V COVENANTS OF HOLDINGS AND THE BORROWERS ii SECTION 5.01. Affirmative Covenants....................................... 85 SECTION 5.02. Negative Covenants.......................................... 89 SECTION 5.03. Reporting Requirements...................................... 111 SECTION 5.04. Financial Covenants......................................... 117 SECTION 5.05. Covenant of Holdings........................................ 119 ARTICLE VI GUARANTEE SECTION 6.01. Guarantee................................................... 120 SECTION 6.02. Guarantee Absolute.......................................... 121 SECTION 6.03. Waivers and Acknowledgments................................. 122 SECTION 6.04. Subrogation................................................. 123 SECTION 6.05. Continuing Guarantee; Assignments........................... 124 ARTICLE VII EVENTS OF DEFAULT SECTION 7.01. Events of Default........................................... 124 ARTICLE VIII THE AGENTS SECTION 8.01. Authorization and Action.................................... 128 SECTION 8.02. Administrative Agent's Reliance, Etc........................ 129 SECTION 8.03. The Administrative Agent, the Co-Arrangers and Affiliates... 130 SECTION 8.04. Lender Credit Decision...................................... 130 SECTION 8.05. Indemnification............................................. 130 SECTION 8.06. Successor Administrative Agent.............................. 131 ARTICLE IX MISCELLANEOUS SECTION 9.01. Amendments, Etc............................................. 132 SECTION 9.02. Notices, Etc................................................ 133 SECTION 9.03. No Waiver; Remedies......................................... 134 SECTION 9.04. Indemnification............................................. 134 SECTION 9.05. Costs and Expenses.......................................... 137 SECTION 9.06. Right of Setoff............................................. 139 SECTION 9.07. Binding Effect.............................................. 139 SECTION 9.08. Assignments and Participations.............................. 139 SECTION 9.09. Confidentiality............................................. 143 SECTION 9.10. Execution in Counterparts................................... 143 SECTION 9.11. Governing Law; Jurisdiction, Etc............................ 143 SECTION 9.12. WAIVER OF JURY TRIAL........................................ 144
iii
SCHEDULES --------- Schedule I - Existing Advances/Commitments and Lending Offices Schedule 4.01(b) - Subsidiaries Schedule 4.01(d) - Governmental Authorizations Schedule 4.01(p) - Intellectual Property Infringements Schedule 4.01(y) - Plans and Multiemployer Plans Schedule 4.01(ff) - Tax Returns and Reports Schedule 4.01(gg) - Open Years Schedule 4.01(jj) - Surviving Indebtedness Schedule 4.01(kk) - Existing Investments Schedule 5.02(a) - Existing Liens Schedule 5.02(i) - Existing Dividends and Payment Restrictions EXHIBITS -------- Exhibit A-1 - Form of Revolving Credit Note Exhibit A-2 - Form of Term Note Exhibit B-1 - Form of Notice of Borrowing Exhibit B-2 - Form of Notice of Conversion Exhibit C - Form of Assignment and Acceptance Exhibit D-1 - Form of Pledge and Assignment Agreement Exhibit D-2 - Form of U.K./Saban U.K.Pledge Agreement Exhibit D-3 - Form of U.K./FKE Pledge Agreement Exhibit E-1 - Form of Fox Kids Guarantee Exhibit E-2 - Form of Subsidiaries Guarantee Exhibit F - Form of Assumption Agreement Exhibit G-1 - Form of Opinion of Louis A. Isakoff, Esq. Exhibit G-2 - Form of Opinion of Squadron, Ellenoff, Plesent & Sheinfeld, LLP Exhibit G-3 - Form of Opinion of Troop Meisinger Steuber & Pasich, LLP Exhibit G-4 - Form of Opinion of Westaway & Co. Exhibit G-5 - Form of Opinion of Norton Rose Exhibit H-1 - Form of Intercompany Note Exhibit H-2 - Form of Permitted Affiliate Subordinated Note
SECOND AMENDED AND RESTATED CREDIT AGREEMENT SECOND AMENDED AND RESTATED CREDIT AGREEMENT dated as of October 28, 1997 among FCN HOLDING, INC., a Delaware corporation ("FCN HOLDING"), INTERNATIONAL FAMILY ENTERTAINMENT, INC., a Delaware corporation ("IFE"), SABAN ENTERTAINMENT, INC., a Delaware corporation ("SABAN" and, together with FCN Holding and IFE, the "BORROWERS"), FOX KIDS HOLDINGS, LLC, a Delaware limited liability company and the owner of all of the issued and outstanding Equity Interests (as hereinafter defined) in each of the Borrowers ("HOLDINGS"), the banks, financial institutions and other institutional lenders set forth on the signature pages to this Agreement under the caption "The Initial Lenders" (collectively, the "INITIAL LENDERS"), CITICORP SECURITIES, INC., a Delaware corporation ("CITICORP SECURITIES"), CHASE SECURITIES, INC., a Delaware corporation ("CHASE SECURITIES") and BANKBOSTON, N.A., a national banking association ("BANKBOSTON"), as the co-arrangers (the "CO-ARRANGERS") for the Facilities (as hereinafter defined), and CITICORP USA, INC., a Delaware corporation ("CITICORP USA"), as the administrative agent and the collateral agent (together with any successor thereto appointed pursuant to Article VIII, the "ADMINISTRATIVE AGENT") for the Lenders and the other Secured Parties (each as hereinafter defined). PRELIMINARY STATEMENTS (1) In connection with the acquisition by Fox Kids Worldwide, Inc., a Delaware corporation and the owner of all of the issued and outstanding Equity Interests in Holdings ("FOX KIDS"), through a series of related transactions, of a majority of the issued and outstanding Equity Interests and Voting Interests (as hereinafter defined) in International Family Entertainment, Inc., a Delaware corporation and the predecessor in interest to IFE ("PRE-MERGER IFE"), Fox Kids, FCN Holdings, Merger Corporation (as hereinafter defined) and Saban (the "ORIGINAL BORROWERS") entered into the Credit Agreement dated as of August 1, 1997 (the "ORIGINAL CREDIT AGREEMENT") with Citicorp USA, as the sole initial lender thereunder (the "ORIGINAL LENDER"), Citicorp Securities, as the arranger and the syndication agent for the credit facilities thereunder, and Citicorp USA, as the administrative agent and the collateral agent for the Original Lender and the other secured parties referred to therein. Pursuant to the terms of the Original Credit Agreement, the Original Lender made advances to Fox Kids and Saban in an aggregate principal amount of $602,000,000 in order to consummate such acquisition, to refinance certain Indebtedness (as hereinafter defined) of Saban outstanding at such time and to pay fees and expenses incurred in connection with the consummation of such acquisition and refinancing and the other transactions described in the Original Credit Agreement. (2) In connection with the consummation of the merger (the "MERGER") of Pre-Merger IFE with and into Fox Kids Merger Corporation, a Delaware corporation and a Subsidiary (as hereinafter defined) of Fox Kids organized thereby to effect the Merger ("MERGER CORPORATION"), with IFE being the surviving corporation, the Original Borrowers entered into the Amended and Restated Credit Agreement dated as of September 4, 1997 (the "EXISTING CREDIT AGREEMENT") with the banks, financial institutional and other institutional lenders party thereto (the "EXISTING LENDERS"), Citicorp Securities, as the arranger and the syndication agent for the credit facilities thereunder, and Citicorp USA, as the administrative agent and the collateral agent for the Existing Lenders and the other secured parties referred to therein. Pursuant to the terms of the Existing Credit Agreement, the Existing Lenders made additional advances to the Original Borrowers in an aggregate principal amount of $648,000,000 (for an aggregate principal amount outstanding thereunder of $1,250,000,000) in order to finance in part the cash consideration payable to the remaining former holders of the outstanding Equity Interests in Pre-Merger IFE for their 2 shares in the Merger, to refinance certain Indebtedness of IFE outstanding at such time and to pay certain fees and expenses incurred in connection with the consummation of the Merger and such refinancing and the other transactions described in the Existing Credit Agreement. (3) Fox Kids and the Borrowers have requested that the Lenders amend and restate the terms of the Existing Credit Agreement in its entirety and agree to lend the Borrowers from time to time up to $710,000,000 at any time outstanding in order to refinance (the "REFINANCING") in part the advances ("EXISTING ADVANCES") made by the Existing Lenders to the Original Borrowers under the terms of the Existing Credit Agreement, to pay certain fees and expenses incurred in connection with the consummation of the Transaction (as hereinafter defined) and for other general corporate purposes not otherwise prohibited under the terms of the Loan Documents (as hereinafter defined). The Lenders have indicated their willingness to agree to amend and restate the Existing Credit Agreement in its entirety and to lend such amounts on the terms and conditions of this Agreement. NOW, THEREFORE, in consideration of the premises and of the mutual covenants and agreements contained herein, the parties hereto hereby agree as follows: ARTICLE I DEFINITIONS AND ACCOUNTING TERMS SECTION 1.01. Certain Defined Terms. As used in this Agreement, the --------------------- following terms shall have the following meanings (such meanings to be equally applicable to both the singular and plural forms of the terms defined): "ADJUSTED CONSOLIDATED EBITDA" means, for any period, the sum of (a) Consolidated EBITDA of Fox Kids and its Subsidiaries for such period, (b) the aggregate amount of all capital contributions made to Fox Kids in cash by one or more of its Affiliates and (c) the aggregate Net Cash Proceeds received by Fox Kids from the issuance and sale of any Equity Interests therein to one or more of its Affiliates or the issuance and sale of one or more Permitted Affiliate Subordinated Notes, in each case under this clause (c) so long as (i) such issuance and sale is otherwise expressly permitted under the terms of the Loan Documents and (ii) all of the Net Cash Proceeds received by Fox Kids from such issuance and sale are used to repay Obligations of Fox Kids and its Subsidiaries as they become due and payable in accordance with their respective terms. "ADJUSTED FUNDED INDEBTEDNESS" means, with respect to any Person and its Subsidiaries at any date of determination, all Funded Indebtedness of such Person and its Subsidiaries outstanding on such date, after excluding therefrom (solely to the extent otherwise included in the determination of Funded Indebtedness at such date) all intercompany Indebtedness among such Person and its Subsidiaries outstanding on such date and, in the case of Fox Kids and its Subsidiaries, (a) all of the Indebtedness under the shares of Series A Preferred Stock, the FBC Subordinated Notes and the NAHI Subordinated Notes outstanding on such date, (b) all of the Funded Indebtedness of Calvin Gilmore Productions, Inc. outstanding on any such date occurring prior to September 30, 1998 and (c) all of the Funded Indebtedness of Saban International Paris SARL that is 100% collateralized by cash or Cash Equivalents. [*] CONFIDENTIAL TREATMENT REQUESTED 3 "ADMINISTRATIVE AGENT" has the meaning specified in the recital of parties to this Agreement. "ADMINISTRATIVE AGENT'S ACCOUNT" means the account of the Administrative Agent maintained by the Administrative Agent at its office at 399 Park Avenue, New York, New York 10043, Account No. 36852248, Reference: Fox Kids Worldwide, Inc., Attention: Bank Loan Syndications, or such other account maintained by the Administrative Agent and designated by the Administrative Agent as such in a written notice to the each of the Borrowers and each of the Lenders. "ADVANCE" means a Revolving Credit Advance or a Term Advance, as the context may require. "AFFECTED LENDERS" has the meaning specified in Section 2.09(e). "AFFILIATE" means, with respect to any Person, any other Person that, directly or indirectly, controls, is controlled by or is under common control with such Person, or is a director or officer of such Person or, with respect to any individual, has a relationship with such individual by blood, marriage or adoption not more remote than first cousin. For purposes of this definition, the term "control" (including the terms "controlling", "controlled by" and "under common control with") of a Person means the possession, direct or indirect, of the power to vote 10% or more of the Voting Interests in such Person or to direct or cause the direction of the management and policies of such Person, whether through the ownership of Voting Interests, by contract or otherwise. "AGENTS" means, collectively, the Administrative Agent, the Co- Arrangers and each of the co-agents or sub-agents appointed by the Administrative Agent from time to time pursuant to Section 8.01(b). "APPLICABLE LENDING OFFICE" means, with respect to each of the Lenders, such Lender's Base Rate Lending Office in the case of a Base Rate Advance and such Lender's Eurodollar Lending Office in the case of a Eurodollar Rate Advance. "APPLICABLE MARGIN" means (a) at any time during the period from the date of this Agreement through the earlier of (i) the date on which the Consolidated financial statements of Holdings and its Subsidiaries for the Fiscal Quarter ending September 30, 1998 are delivered to the Lenders pursuant to Section 5.03(b) and (ii) November 30, 1998, [*]% per annum for Base Rate Advances and [*]% per annum for Eurodollar Rate Advances and (b) at any time and from time to time thereafter, a percentage per annum equal to the applicable percentage set forth below for the Performance Level set forth below: ============================================================= EURODOLLAR RATE PERFORMANCE LEVEL BASE RATE ADVANCES ADVANCES - ------------------------------------------------------------- I [*] % [*] % - ------------------------------------------------------------- II [*] % [*] % - ------------------------------------------------------------- III [*] % [*] % - ------------------------------------------------------------- [*] CONFIDENTIAL TREATMENT REQUESTED 4 ============================================================= EURODOLLAR RATE PERFORMANCE LEVEL BASE RATE ADVANCES ADVANCES - ------------------------------------------------------------- IV [*]% [*]% - ------------------------------------------------------------- V [*]% [*]% ============================================================= provided, however, that if, on or prior to November 18, 1997, the Term Commitments have not been reduced in accordance with Section 2.04(b)(iv), and the outstanding Term Advances have not been prepaid pursuant to Section 2.05(b), with at least [*] in Net Cash Proceeds from the sale, lease transfer or other disposition of property and assets otherwise permitted to be sold, leased, transferred or otherwise disposed of under Section 5.02(d)(vii), then, notwithstanding the terms of clause (a) of this definition, the Applicable Margin at any time during the period from the date of this Agreement through the earlier of (A) the date on which the Consolidated financial statements of Holdings and its Subsidiaries for the Fiscal Quarter ending September 30, 1998 are delivered to the Lenders pursuant to Section 5.03(b) and (B) November 30, 1998, shall be [*]% per annum for Base Rate Advances and [*]% per annum for Eurodollar Rate Advances. For purposes of clause (b) of the immediately preceding sentence, the Applicable Margin for each Base Rate Advance shall be determined by reference to the Performance Level in effect from time to time and the Applicable Margin for each Eurodollar Rate Advance shall be determined by reference to the Performance Level in effect on the first day of each Interest Period for such Advance. "APPLICABLE PERCENTAGE" means, with respect to the Commitment Fee, (a) at any time during the period from the date of this Agreement through the earlier of (i) the date on which the Consolidated financial statements of Holdings and its Subsidiaries for the Fiscal Quarter ending September 30, 1998 are delivered to the Lenders pursuant to Section 5.03(b) and (ii) November 30, 1998, [*]% per annum and (b) at any time and from time to time thereafter, a percentage per annum equal to the applicable percentage set forth below for the Performance Level set forth below: ================================================= PERFORMANCE LEVEL COMMITMENT FEE - ------------------------------------------------- I [*]% - ------------------------------------------------- II [*]% - ------------------------------------------------- III [*]% - ------------------------------------------------- IV [*]% - ------------------------------------------------- V [*]% ================================================= provided, however, that if, on or prior to November 18, 1997, the Term Commitments have not been reduced in accordance with Section 2.04(b)(iv), and the outstanding Term Advances have not been prepaid pursuant to Section 2.05(b), with at least [*] in Net Cash Proceeds from the sale, lease transfer or other disposition of property and assets otherwise permitted to be sold, leased, transferred or otherwise disposed of under Section 5.02(d)(vii), then, notwithstanding the terms of clause (a) of this definition, the Applicable Percentage at any time [*] CONFIDENTIAL TREATMENT REQUESTED 5 during the period from the date of this Agreement through the earlier of (A) the date on which the Consolidated financial statements of Holdings and its Subsidiaries for the Fiscal Quarter ending September 30, 1998 are delivered to the Lenders pursuant to Section 5.03(b) and (B) November 30, 1998, shall be [*]% per annum. For purposes of clause (b) of the immediately preceding sentence, the Applicable Percentage for the Commitment Fee shall be determined by reference to the Performance Level in effect from time to time. "APPLICATION DATE" has the meaning specified in Section 2.04(b)(v)(A). "APPROPRIATE BORROWER" means (a) with respect to the Revolving Credit Facility, FCN Holding, IFE and Saban and (b) with respect to the Term Facility, IFE. "APPROPRIATE BORROWER'S ACCOUNT" means (a) with respect to FCN Holding, the account of FCN Holding maintained thereby with [*] at its office at [*], (b) with respect to IFE, the account of IFE maintained thereby with [*] at its office at [*], and (c) with respect to Saban, the account of Saban maintained thereby with [*] at its office at [*], or (d) with respect to any of the Borrowers, such other account of such Borrower as is agreed from time to time in writing between such Borrower and the Administrative Agent. "APPROPRIATE LENDER" means, with respect to either of the Facilities at any time, a Lender that has a Commitment with respect to such Facility at such time. "APPROVED COMPLETION GUARANTEE" means, with respect to any of the items of Product, a guarantee in support of the completion of such item of Product issued by any Person that has a claims paying ability rating of at least "A-" (or the then equivalent rating) from A.M. Best Company or S&P or an insurance financial strength rating of at least A3 from Moody's or that is approved in writing by the Lenders (such approval not to be unreasonably withheld or delayed) in favor of the Borrower or the Subsidiary of any of the Borrowers that is producing such item of Product, in each case together with a "cut-through" endorsement issued by the reinsurer of such Person reasonably acceptable to the Lenders in favor of such Borrower or such Subsidiary as beneficiary thereunder, naming the Administrative Agent, on behalf of the Secured Parties, as the direct beneficiary of all proceeds thereunder, and otherwise in form and substance reasonably satisfactory to the Lenders. "ASSET SWAP" means, with respect to the sale, transfer or other disposition of all of the Equity Interests in, or all of the operating assets comprising a business unit, division or branch (or any other distinct unit of operation that contributes a discrete and readily discernable amount of Consolidated EBITDA) of, any Person by any of the Borrowers or any of their respective Subsidiaries, the application of the Net Cash Proceeds received directly or indirectly by or on behalf of such Borrower or any such Subsidiary within 90 days of such sale, transfer or other disposition to the purchase or other acquisition of: 6 (a) an amount and class of Equity Interests in any other Person (i) having cash flows and value that are substantially the same in amount, contingency, quality and timing as the cash flows and value of the Equity Interests being so sold, transferred or otherwise disposed of, (ii) that will entitle such Borrower or such Subsidiary to distributions that are substantially the same in amount, contingency, quality and timing as the distributions received by such Borrower or such Subsidiary from the Equity Interests being so sold, transferred or otherwise disposed of and (iii) that will subject or expose such Borrower or such Subsidiary to contingent liabilities that are no greater in amount, contingency, quality or timing than the contingent liabilities being assigned or otherwise transferred with the Equity Interests being so sold, transferred or otherwise disposed of, all as determined in good faith by the board of directors of the applicable Borrower (and, in the case of subclause (a)(iii) of this definition, taking into account, among other things, all appropriate and adequate reserves that would be established for such contingent liabilities in accordance with GAAP in effect at the time of such purchase or other acquisition); provided that, if the Equity Interests being so sold, transferred or otherwise disposed of comprise all or any part of the Equity Interests in a Restricted Subsidiary, the Person purchased or otherwise acquired in the related transaction shall constitute a Restricted Subsidiary; or (b) operating assets (i) having cash flows, value and use that are substantially the same in amount, contingency, quality and timing as the cash flows, value and use of the operating assets that are being so sold, transferred or otherwise disposed of and (ii) having contingent liabilities (or being sold together with the assumption of contingent liabilities) that are no greater in amount, contingency, quality or timing than the contingent liabilities being assigned or otherwise transferred with the operating assets so sold, transferred or otherwise disposed of, all as determined in good faith by the board of directors of the applicable Borrower (and, in the case of subclause (b)(ii) of this definition, taking into account, among other things, all appropriate and adequate reserves that would be established for such contingent liabilities in accordance with GAAP in effect at the time of such purchase or other acquisition). "ASSIGNMENT AND ACCEPTANCE" means an assignment and acceptance entered into by and between a Lender and an Eligible Assignee, and accepted by the Administrative Agent and, if required, Holdings, in accordance with Section 9.08 and in substantially the form of Exhibit C hereto. "ASSUMPTION AGREEMENT" has the meaning specified in Section 3.01(i)(xii). "ATTRIBUTABLE ASSET EBITDA" means, with respect to the sale, transfer or other disposition of any of the property or assets of any of the Borrowers or any of their Subsidiaries, an amount equal to that portion of Consolidated EBITDA of Holdings and its Subsidiaries for the most recently completed Measurement Period prior to the date of such sale, transfer or other disposition for which Holdings and/or the Borrowers have delivered Consolidated financial statements of Holdings and its Subsidiaries pursuant to Section 5.03(b) or 5.03(c) that was directly contributed thereto by such property or asset. 7 "AVAILABLE CASH FLOW" means, with respect to Holdings and its Subsidiaries for any period, (a) Consolidated EBITDA of Holdings and its Subsidiaries for such period less (b) the sum (without duplication) of (i) all Consolidated Cash Interest Expense of Holdings and its Subsidiaries for such period, (ii) all Consolidated Cash Taxes paid by or on behalf of Holdings or any of its Subsidiaries during such period, (iii) the aggregate amount of all Capital Expenditures made by Holdings and its Subsidiaries during such period, (iv) the aggregate amount of all Required Principal Payments made by Holdings and its Subsidiaries during such period and (v) the aggregate amount of all Cash Distributions made by or on behalf of Holdings during such period. "BANKBOSTON" has the meaning specified in the recital of parties to this Agreement. "BANK HEDGE AGREEMENT" means any interest rate Hedge Agreement permitted under Article V that is entered into by and between any of the Borrowers and any of the Lenders. "BASE RATE" means a fluctuating interest rate per annum in effect from time to time, which rate per annum shall at all times be equal to the highest of: (a) the rate of interest announced publicly by Citibank in New York, New York, from time to time, as Citibank's base rate; (b) the sum (adjusted to the nearest 1/4 of 1% or, if there is no nearest 1/4 of 1%, to the next higher 1/4 of 1%) of (i) 1/2 of 1% per annum plus (ii) the rate obtained by dividing (A) the latest three- week moving average of secondary market morning offering rates in the United States of America for three-month certificates of deposit of major United States money market banks, such three-week moving average (adjusted on the basis of a year of 360 days) being determined weekly on each Monday (or, if such day is not a Business Day, on the next succeeding Business Day) for the three-week period ending on the previous Friday by Citibank on the basis of such rates reported by certificate of deposit dealers to and published by the Federal Reserve Bank of New York or, if such publication shall be suspended or terminated, on the basis of quotations for such rates received by Citibank from three New York certificate of deposit dealers of recognized standing selected by Citibank, by (B) a percentage equal to 100% minus the average of the daily percentages specified during such three-week period by the Board of Governors of the Federal Reserve System (or any successor thereto) for determining the maximum reserve requirement (including, but not limited to, any emergency, supplemental or other marginal reserve requirement) for Citibank with respect to liabilities consisting of or including (among other liabilities) three-month U.S. dollar nonpersonal time deposits in the United States of America plus (iii) the average during such three-week period of the annual assessment rates estimated by Citibank for determining the then current annual assessment payable by Citibank to the Federal Deposit Insurance Corporation (or any successor thereto) for insuring U.S. dollar deposits of Citibank in the United States of America; and (c) 0.50% per annum above the Federal Funds Rate. 8 "BASE RATE ADVANCE" means an Advance that bears interest as provided in Section 2.06(a)(i). "BASE RATE LENDING OFFICE" means, with respect to each of the Lenders, the office of such Lender specified as its "Base Rate Lending Office" opposite its name on Part B of Schedule I hereto or in the Assignment and Acceptance pursuant to which it became a Lender, as the case may be, or such other office of such Lender as such Lender may from time to time specify to each of the Appropriate Borrowers and the Administrative Agent for such purpose. "BORROWERS" has the meaning specified in the recital of parties to this Agreement. "BORROWING" means a Revolving Credit Borrowing or a Term Borrowing, as the context may require. "BUSINESS DAY" means a day of the year on which banks are not required or authorized by law to close in New York, New York, and, if the applicable Business Day relates to any Eurodollar Rate Advances, on which dealings in U.S. dollar deposits are carried on in the London interbank market. "CAPITAL ASSETS" means, with respect to any Person, all equipment, fixed assets and real property or improvements of such Person, or replacements or substitutions therefor or additions thereto, that, in accordance with GAAP, have been or should be reflected as additions to property, plant or equipment on the balance sheet of such Person or that have a useful life of more than one year. "CAPITAL EXPENDITURES" means, with respect to any Person for any period, (a) all expenditures made directly or indirectly by such Person during such period for Capital Assets (whether paid in cash or other consideration or accrued as a liability and including, without limitation, all expenditures for maintenance and repairs which are required, in accordance with GAAP, to be capitalized on the books of such Person) and (b) solely to the extent not otherwise included in clause (a) of this definition, the aggregate principal amount of all Indebtedness (including, without limitation, Obligations in respect of Capitalized Leases) assumed or incurred during such period in connection with any such expenditures for Capital Assets. "CAPITALIZED LEASE" means any lease with respect to which the lessee is required to recognize concurrently the acquisition of property or an asset and the incurrence of a liability in accordance with GAAP. "CASH COLLATERAL ACCOUNT LETTERS" has the meaning specified in Section 5(a) of the Pledge and Assignment Agreement. "CASH COLLATERAL ACCOUNTS" has the meaning specified in Preliminary Statement (6) of the Pledge and Assignment Agreement. "CASH DISTRIBUTIONS" means, with respect to any Person for any period, all dividends and distributions on any of the outstanding Equity Interests in such Person, all purchases, redemptions, retirements, defeasances or other acquisitions of any of the outstanding Equity 9 Interests in such Person and all returns of capital to the stockholders, partners or members (or the equivalent persons) of such Person, in each case to the extent paid in cash by or on behalf of such Person during such period. "CASH EQUIVALENTS" means any of the following types of Investments, to the extent owned by Fox Kids or any of its Subsidiaries free and clear of all Liens (other than Liens created under the Collateral Documents): (a) readily marketable obligations issued or directly and fully guaranteed or insured by the United States of America or any agency or instrumentality thereof having maturities of not more than 360 days from the date of acquisition thereof; provided that the full faith and credit of the United States of America is pledged in support thereof; (b) time deposits with, or insured certificates of deposit or bankers' acceptances of, any commercial bank that (i) (A) is a Lender or (B) is organized under the laws of the United States of America, any state thereof or the District of Columbia or is the principal banking subsidiary of a bank holding company organized under the laws of the United States of America, any state thereof or the District of Columbia and is a member of the Federal Reserve System, (ii) issues (or the parent of which issues) commercial paper rated as described in clause (c) of this definition and (iii) has combined capital and surplus of at least $1,000,000,000, in each case with maturities of not more than 180 days from the date of acquisition thereof; (c) commercial paper issued by any Person organized under the laws of any state of the United States of America and rated at least "Prime-1" (or the then equivalent grade) by Moody's or at least "A-1" (or the then equivalent grade) by S&P, in each case with maturities of not more than 180 days from the date of acquisition thereof; and (d) Investments, classified in accordance with GAAP as current assets of Fox Kids or any of its Subsidiaries, in money market investment programs registered under the Investment Company Act of 1940, as amended, which are administered by financial institutions that have the highest rating obtainable from either Moody's or S&P, and the portfolios of which are limited solely to Investments of the character and quality described in clauses (a), (b) and (c) of this definition. "CERCLA" means the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended from time to time. "CERCLIS" means the Comprehensive Environmental Response, Compensation and Liability Information System maintained by the United States Environmental Protection Agency. "CHANGE OF CONTROL" means, at any time: (a) the TNCL Group shall cease to own and control legally and beneficially, either directly or indirectly, (i) Voting Interests in Fox Kids representing at least 30% of the combined voting power of all of the Voting Interests in Fox Kids (on a fully diluted 10 basis) and (ii) Equity Interests in Fox Kids representing at least 30% of the issued and outstanding Equity Interests in Fox Kids (on a fully diluted basis); (b) any "person" or "group" (each as used in Sections 13(d)(3) and 14(d)(2) of the Exchange Act) becomes the "beneficial owner" (as defined in Rule 13d-3 of the Exchange Act), directly or indirectly, of (A) Voting Interests in Fox Kids (including through securities convertible into or exchangeable for such Voting Interests) representing a percentage of the combined voting power of all of the Voting Interests in Fox Kids (on a fully diluted basis) that is equal to or greater than the percentage of such combined voting power legally and beneficially owned, directly or indirectly, by the TNCL Group (on a fully diluted basis) or (B) Equity Interests in Fox Kids representing a percentage of the aggregate Equity Interests in Fox Kids (on a fully diluted basis) outstanding at such time that is equal to or greater than the aggregate Equity Interests in Fox Kids legally and beneficially owned directly or indirectly by the TNCL Group (on a fully diluted basis) at such time; provided, however, that Haim Saban and/or one or more of his Affiliates may own (1) Voting Interests in Fox Kids (including through securities convertible into or exchangeable for such Voting Interests) representing a percentage of the combined voting power of all of the Voting Interests in Fox Kids (on a fully diluted basis) that is equal to (but not greater than) the percentage of such combined voting power legally and beneficially owned, directly or indirectly, by the TNCL Group (on a fully diluted basis) and/or (2) Equity Interests in Fox Kids representing not more than 55% of the aggregate Equity Interests in Fox Kids (on a fully diluted basis) outstanding at such time; (c) (i) the TNCL Group shall cease to have the ability, directly or indirectly, to elect at least one-half of the members of the board of directors of Fox Kids or (ii) any "person" or "group" (each as used in Sections 13(d)(3) and 14(d)(2) of the Exchange Act) other than the TNCL Group otherwise acquires the ability, directly or indirectly, to elect a majority of the board of directors of Fox Kids; (d) any Person or two or more Persons acting in concert other than the TNCL Group shall have acquired by contract or otherwise, or shall have entered into a contract or arrangement that, upon consummation thereof, will result in its or their acquisition of the power to exercise, directly or indirectly, a controlling influence on the management or policies of Fox Kids; (e) with respect to any pledge or other security agreement covering all or any portion of the Equity Interests in Fox Kids, any secured party or pledgee thereunder shall become the holder of record of any such shares (except in the case of a registration of the pledge of such Equity Interests to such secured party or pledgee solely in its capacity as a pledgee) or shall receive dividends or other cash or cash equivalent distributions (including, without limitation, stock repurchases) in respect thereof, or shall proceed to exercise voting or other consensual rights in respect thereof (whether by proxy, voting or other similar arrangement or otherwise), or shall otherwise commence to realize upon such shares; (f) Fox Kids shall cease, directly or indirectly, to own and control legally and beneficially all of the Equity Interests in Holdings; or 11 (g) Holdings shall cease, directly or indirectly, to own and control legally and beneficially all of the Equity Interests in each of the Borrowers. "CHASE SECURITIES" shall have the meaning specified in the recital of parties to this Agreement. "CITIBANK" means Citibank, N.A., a national banking association and an affiliate of Citicorp Securities and Citicorp USA. "CITICORP SECURITIES" has the meaning specified in the recital of parties to this Agreement. "CITICORP USA" has the meaning specified in the recital of parties to this Agreement. "CO-ARRANGERS" has the meaning specified in the recital of parties to this Agreement. "COLLATERAL" means all of the "Collateral" referred to in the Collateral Documents and all of the other property and assets that are or are intended under the terms of the Collateral Documents to be subject to Liens in favor of the Administrative Agent for the benefit of the Secured Parties. "COLLATERAL DOCUMENTS" means, collectively, the Pledge and Assignment Agreement, the Foreign Subsidiary Pledge Agreements, the Cash Collateral Account Letters and each of the other agreements that creates or purports to create a Lien in favor of the Administrative Agent for the benefit of the Secured Parties. "COMMITMENT" means a Revolving Credit Commitment or a Term Commitment, as the context may require. "COMMITMENT DATE" has the meaning specified in Section 2.04(b)(v)(A). "COMMITMENT FEE" has the meaning specified in Section 2.07(a). "CONFIDENTIAL INFORMATION" means information that is furnished to the Administrative Agent or any of the Lenders by or on behalf of Fox Kids, Holdings or any of the Borrowers that either is conspicuously marked as confidential or that a reasonable person would believe is confidential or proprietary in nature, but does not include any such information that (a) is or becomes generally available to the public (other than as a result of a breach by the Administrative Agent or such Lender of its confidentiality obligations under this Agreement) or (b) is or becomes available to the Administrative Agent or such Lender from a source other than Fox Kids, Holdings or any of the Borrowers that is not, to the best of the Administrative Agent's or such Lender's knowledge, acting in violation of a confidentiality agreement with Fox Kids, Holdings or any of the Borrowers or otherwise legally prohibited from disclosing such information. "CONSOLIDATED" refers to the consolidation of accounts in accordance with GAAP. "CONSOLIDATED CASH INTEREST EXPENSE" means, with respect to any Person for any period, all interest expense paid or payable on all Indebtedness of such Person and its Subsidiaries for 12 such period, determined on a Consolidated basis and in accordance with GAAP for such period, including, without limitation, (a) in the case of each of the Borrowers, (i) interest expense paid or payable in respect of Indebtedness resulting from Advances and (ii) all fees paid or payable pursuant to Section 2.07(a), (b) the interest component of all Obligations in respect of Capitalized Leases, (c) commissions, discounts and other fees and charges paid or payable in connection with letters of credit and (d) the net payment, if any, paid or payable in connection with Hedge Agreements less the net credit, if any, received in connection with Hedge Agreements, but excluding, in each case, (A) any amortization of original issue discount, (B) the interest portion of any deferred payment obligation and (C) any other interest not payable in cash. "CONSOLIDATED CASH TAXES" means, with respect to any Person for any period, (a) the aggregate amount of all payments in respect of income taxes made in cash by such Person and its Subsidiaries to any applicable Governmental Authority during such period less (b) the aggregate amount of all cash refunds in respect of income taxes received by such Person and its Subsidiaries from any applicable Governmental Authority during such period, after giving effect, to the extent available, to the application of net operating losses available to such Person or any such Subsidiary. "CONSOLIDATED EBITDA" means, with respect to any Person for any period, (a) the Consolidated Net Income of such Person and its Subsidiaries for such period plus (b) the sum of each of the following expenses that have been deducted from the determination of the Consolidated Net Income of such Person and its Subsidiaries for such period: (i) all interest expense of such Person and its Subsidiaries for such period, (ii) all income tax expense (whether federal, state, local, foreign or otherwise) of such Person and its Subsidiaries for such period, (iii) all depreciation expense of such Person and its Subsidiaries for such period, (iv) all amortization expense of such Person and its Subsidiaries (other than any such amortization expense attributable to programming costs, Participations and Residuals) for such period and (v) all extraordinary losses deducted in determining the Consolidated Net Income of such Person and its Subsidiaries for such period less all extraordinary gains added in determining the Consolidated Net Income of such Person and its Subsidiaries for such period, in each case determined on a Consolidated basis and in accordance with GAAP for such period. "CONSOLIDATED NET INCOME" means, with respect to any Person for any period, the net income (or net loss) of such Person and its Subsidiaries for such period, determined on a Consolidated basis and in accordance with GAAP for such period. "CONSOLIDATED NET WORTH" means, with respect to any Person at any date of determination, the sum of (a) the capital stock and additional paid-in capital of such Person and its Subsidiaries plus (b) retained earnings (or less accumulated deficits) of such Person and its Subsidiaries, determined on a Consolidated basis and in accordance with GAAP for such period. "CONSTITUTIVE DOCUMENTS" means, with respect to any Person, the certificate of incorporation or registration (including, if applicable, certificate of change of name), articles of incorporation or association, memorandum of association, charter, bylaws, partnership agreement, trust agreement, joint venture agreement, limited liability company operating or members agreement, joint venture agreement or one or more similar agreements, instruments or documents constituting the organization or formation of such Person. 13 "CONSULTING AGREEMENT" means the Letter Employment Agreement dated June 11, 1997 between Fox Kids and M.G. "Pat" Robertson, as such agreement may be amended, supplemented or otherwise modified from time to time in accordance with the terms thereof, but to the extent permitted under the terms of the Loan Documents. "CONSULTING AGREEMENT GUARANTY" means the Guaranty dated as of June 11, 1997 made by TNCL in favor of M.G. "Pat" Robertson, as such guaranty may be amended, supplemented or otherwise modified from time to time in accordance with the terms thereof, but to the extent permitted under the terms of the Loan Documents. "CONTINGENT OBLIGATION" means, with respect to any Person, any obligation of such Person to guarantee or intended to guarantee any Indebtedness, leases, dividends or other obligations ("primary obligations") of any other Person (the "primary obligor") in any manner, whether directly or indirectly, including, without limitation, (a) the direct or indirect guaranty, endorsement (other than for collection or deposit in the ordinary course of business), co-making, discounting with recourse or sale with recourse by such Person of the obligation of a primary obligor, (b) the obligation to make take-or-pay or similar payments, if required, regardless of nonperformance by any other party or parties to an agreement or (c) any obligation of such Person, whether or not contingent, (i) to purchase any such primary obligation or any property constituting direct or indirect security therefor, (ii) to advance or supply funds (A) for the purchase or payment of any such primary obligation or (B) to maintain working capital or equity capital of the primary obligor or otherwise to maintain the net worth or solvency of the primary obligor, (iii) to purchase property, assets, securities or services primarily for the purpose of assuring the owner of any such primary obligation of the ability of the primary obligor to make payment of such primary obligation or (iv) otherwise to assure or hold harmless the holder of such primary obligation against loss in respect thereof. The amount of any Contingent Obligation shall be deemed to be an amount equal to the stated or determinable amount of the primary obligation in respect of which such Contingent Obligation is made (or, if less, the maximum amount of such primary obligation for which such Person may be liable pursuant to the terms of the instrument evidencing such Contingent Obligation) or, if not stated or determinable, the maximum reasonably anticipated liability in respect thereof (assuming such Person is required to perform thereunder), as determined by such Person in good faith. "CONVERSION", "CONVERT" and "CONVERTED" each refer to a conversion of Advances of one Type into Advances of the other Type pursuant to Section 2.06 or 2.08. "CURRENT ASSETS" means, with respect to any Person, all assets of such Person that, in accordance with GAAP, would be classified as current assets on the balance sheet of a company conducting a business the same as or similar to that of such Person, after deducting appropriate and adequate reserves therefrom in accordance with GAAP. "CURRENT LIABILITIES" means, with respect to any Person, (a) all Indebtedness of such Person that by its terms is payable on demand or matures within one year after the date of determination (excluding any Indebtedness renewable or extendible, at the option of such Person, to a date more than one year from such date or arising under a revolving credit or similar agreement that obligates the lender or lenders to extend credit during a period of more than one year from such date), (b) all amounts of Funded Indebtedness of such Person required to be paid [*] CONFIDENTIAL TREATMENT REQUESTED 14 or prepaid within one year after such date and (c) all other items (including, without limitation, taxes accrued as estimated, Programming Liabilities, Participations and Residuals otherwise excluded from Funded Indebtedness under the proviso to the definition thereof and trade payables otherwise excluded from Indebtedness under clause (b) of the definition thereof) that, in accordance with GAAP, would be classified on the balance sheet of such Person as current liabilities of such Person. "DEFAULT" means any Event of Default or any event or condition that would constitute an Event of Default but for the requirement that notice be given or time elapse or both. "DEFAULTED ADVANCE" means, with respect to any of the Lenders at any time, the portion of any Advance required to be made by such Lender to any of the Borrowers pursuant to Section 2.01 at or prior to such time that has not been made by such Lender or by the Administrative Agent for the account of such Lender pursuant to Section 2.02(d) as of such time. If a portion of a Defaulted Advance shall be deemed made pursuant to Section 2.13(a), the remaining portion of such Defaulted Advance shall be considered a Defaulted Advance originally required to be made pursuant to Section 2.01 on the same date as the Defaulted Advance so deemed made in part. "DEFAULTED AMOUNT" means, with respect to any of the Lenders at any time, any amount required to be paid by such Lender to the Administrative Agent or any of the other Lenders under this Agreement or any of the other Loan Documents at or prior to such time that has not been so paid as of such time, including, without limitation, any amount required to be paid by such Lender to (a) the Administrative Agent pursuant to Section 2.02(d) to reimburse the Administrative Agent for the amount of any Advance made by the Administrative Agent for the account of such Lender, (b) any of the other Lenders pursuant to Section 2.12 to purchase any participation in Advances owing to such other Lender and (c) the Administrative Agent pursuant to Section 8.05 to reimburse the Administrative Agent for such Lender's ratable share of any amount required to be paid by the Lenders to the Administrative Agent as provided therein. If a portion of a Defaulted Amount shall be deemed paid pursuant to Section 2.13(b), the remaining portion of such Defaulted Amount shall be considered a Defaulted Amount originally required to be paid under this Agreement or any of the other applicable Loan Documents on the same date as the Defaulted Amount so deemed paid in part. "DEFAULTING LENDER" means, at any time, any of the Lenders that, at such time, (a) owes a Defaulted Advance or a Defaulted Amount or (b) shall take any action or be the subject of any action or proceeding of a type described in Section 7.01(f). "DOMESTIC SUBSIDIARY" means, at any time, any of the direct or indirect Subsidiaries of Holdings (other than any of the other Borrowers) that is incorporated or organized under the laws of any state of the United States of America or the District of Columbia. "ECF PERCENTAGE" means (a) at any date of determination on which the Total Leverage Ratio for the most recently completed Measurement Period prior to such date is [*] and (b) at any date of determination on which the Total Leverage Ratio for the most recently completed Measurement Period prior to such date is [*] 15 "EFFECTIVE DATE" has the meaning specified in Section 3.01. "ELIGIBLE ASSIGNEE" means: (a) a Lender; (b) an Affiliate of a Lender; (c) a commercial bank organized under the laws of the United States of America or any state thereof and having total assets in excess of $5,000,000,000; (d) a commercial bank organized under the laws of any country other than the United States of America that is a member of the OECD or a political subdivision of any such country and having total assets in excess of $5,000,000,000, so long as such bank is acting through a branch or agency located in the United States of America; (e) the central bank of any country that is a member of the OECD; (f) any finance company, insurance company or other financial institution or fund (whether a corporation, partnership, trust or other entity) that is engaged in making, purchasing or otherwise investing in commercial loans in the ordinary course of its business and has total assets in excess of $300,000,000; or (g) any other Person approved by the Administrative Agent and Holdings (in each case such approval not to be unreasonably withheld or delayed); provided, however, that, notwithstanding any of the foregoing provisions of this definition, neither any of the Loan Parties nor any Affiliate of any of the Loan Parties shall qualify as an Eligible Assignee. "ENVIRONMENTAL ACTION" means any action, suit, demand, demand letter, claim, notice of noncompliance or violation, notice of liability or potential liability, investigation, proceeding, consent order or consent agreement, abatement order or other order or directive (conditional or otherwise) relating in any way to any Environmental Law, any Environmental Permit or any Hazardous Materials or arising from alleged injury or threat to health, safety, natural resources or the environment, including, without limitation, (a) by any Governmental Authority for enforcement, cleanup, removal, response, remedial or other actions or damages and (b) by any applicable Governmental Authority or other third party for damages, contribution, indemnification, cost recovery, compensation or injunctive relief. "ENVIRONMENTAL LAW" means any Requirement of Law, or any judicial or agency interpretation, policy, guideline or other requirement of any Governmental Authority, relating to (a) the generation, use, handling, transportation, treatment, storage, disposal, release or discharge of Hazardous Materials, (b) pollution or the protection of the environment, health, safety or natural resources or (c) occupational safety and health, industrial hygiene, land use or the protection of human, plant or animal health or welfare, including CERCLA, the Hazardous Materials Transportation Act (49 U.S.C. (S) 1801 et seq.), the Resource Conservation and 16 Recovery Act (42 U.S.C. (S) 6901 et seq.), the Federal Water Pollution Control Act (33 U.S.C. (S) 1251 et seq.), the Clean Air Act (42 U.S.C. (S) 7401 et seq.), the Toxic Substances Control Act (15 U.S.C. (S) 2601 et seq.), the Federal Insecticide, Fungicide and Rodenticide Act (7 U.S.C. (S) 136 et seq.), the Occupational Safety and Health Act (29 U.S.C. (S) 651 et seq.), the Oil Pollution Act (33 U.S.C. (S) 2701 et seq.) and the Emergency Planning and Community Right-to-Know Act (42 U.S.C. (S) 11001 et seq.), in each case as amended from time to time, and including the regulations promulgated and the rulings issued from time to time thereunder. "ENVIRONMENTAL PERMIT" means any permit, approval, license, identification number or other authorization required under any Environmental Law. "EQUITY INTERESTS" means, with respect to any Person, all of the shares of capital stock of (or other ownership or profit interests in) such Person, all of the warrants, options or other rights for the purchase or acquisition from such Person of shares of capital stock of (or other ownership or profit interests in) such Person, all of the securities convertible into or exchangeable for shares of capital stock of (or other ownership or profit interests in) such Person or warrants, rights or options for the purchase or acquisition from such Person of such shares (or such other interests), and all of the other ownership or profit interests in such Person (including, without limitation, partnership, member or trust interests therein), whether voting or nonvoting, and whether or not such shares, warrants, options, rights or other interests are authorized or otherwise existing on any date of determination. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended from time to time, and the regulations promulgated and the rulings issued from time to time thereunder. "ERISA AFFILIATE" means any Person that for purposes of Title IV of ERISA is a member of the controlled group of any of the Loan Parties, or under common control with any of the Loan Parties, within the meaning of Section 414 of the Internal Revenue Code. "ERISA EVENT" means: (a) (i) the occurrence of a reportable event, within the meaning of Section 4043(c) of ERISA, with respect to any Plan unless the 30- day notice requirement with respect to such event has been waived by the PBGC or (ii) the requirements of paragraph (1) of Section 4043(b) of ERISA are met with respect to a contributing sponsor, as defined in Section 4001(a)(13) of ERISA, of a Plan, and an event described in paragraph (9), (10), (11), (12) or (13) of Section 4043(c) of ERISA could reasonably be expected to occur with respect to such Plan within the following 30 days; (b) the application for a minimum funding waiver with respect to a Plan; (c) the provision by the administrator of any Plan of a notice of intent to terminate such Plan pursuant to Section 4041(a)(2) of ERISA (including any such notice with respect to a plan amendment referred to in Section 4041(e) of ERISA); 17 (d) the cessation of operations at a facility of any of the Loan Parties or any of the ERISA Affiliates under the circumstances described in Section 4062(e) of ERISA; (e) the withdrawal or partial withdrawal by any of the Loan Parties or any of the ERISA Affiliates from a Plan or a Multiemployer Plan; (f) the conditions for the imposition of a Lien under Section 302(f) of ERISA shall have been met with respect to any Plan; (g) the adoption of an amendment to a Plan requiring the provision of security to such Plan pursuant to Section 307 of ERISA; or (h) the institution by the PBGC of proceedings to terminate a Plan pursuant to Section 4042 of ERISA, or the occurrence of any event or condition described in Section 4042 of ERISA, that constitutes grounds for the termination of, or the appointment of a trustee to administer, a Plan. "EUROCURRENCY LIABILITIES" has the meaning specified in Regulation D of the Board of Governors of the Federal Reserve System, as in effect from time to time. "EURODOLLAR LENDING OFFICE" means, with respect to each of the Lenders, the office of such Lender specified as its "Eurodollar Lending Office" opposite its name on Part B of Schedule I hereto or in the Assignment and Acceptance pursuant to which it became a Lender, as the case may be (or, if no such office is specified, its Base Rate Lending Office), or such other office of such Lender as such Lender may from time to time specify to each of the Appropriate Borrowers and the Administrative Agent for such purpose. "EURODOLLAR RATE" means, for any Interest Period for all of the Eurodollar Rate Advances comprising part of the same Borrowing, an interest rate per annum equal to the rate per annum obtained by dividing (a) the average (rounded upward to the nearest whole multiple of 1/16 of 1% per annum, if such average is not such a multiple) of the rate per annum at which deposits in U.S. dollars are offered by the principal office of each of the Reference Banks in London, England to prime banks in the London interbank market at 11:00 A.M. (London time) two Business Days before the first day of such Interest Period in an amount substantially equal to such Reference Bank's Eurodollar Rate Advance (or, in the case of Citibank, Citicorp USA's Eurodollar Rate Advance) comprising part of such Borrowing to be outstanding during such Interest Period (or, if any Reference Bank (or, in the case of Citibank, Citicorp USA) shall not have such a Eurodollar Rate Advance, $1,000,000) and for a period equal to such Interest Period by (b) a percentage equal to 100% minus the Eurodollar Rate Reserve Percentage for such Interest Period. The Eurodollar Rate for any Interest Period for each of the Eurodollar Rate Advances comprising part of the same Borrowing shall be determined by the Administrative Agent on the basis of applicable rates furnished to and received by the Administrative Agent from the Reference Banks two Business Days before the first day of such Interest Period, subject, however, to the provisions of Section 2.06(c). "EURODOLLAR RATE ADVANCE" means an Advance that bears interest as provided in Section 2.06(a)(ii). [*] CONFIDENTIAL TREATMENT REQUESTED 18 "EURODOLLAR RATE RESERVE PERCENTAGE" means, for any Interest Period for all of the Eurodollar Rate Advances comprising part of the same Borrowing, the reserve percentage applicable two Business Days before the first day of such Interest Period under regulations issued from time to time by the Board of Governors of the Federal Reserve System (or any successor thereto) for determining the maximum reserve requirement (including, without limitation, any emergency, supplemental or other marginal reserve requirement) for a member bank of the Federal Reserve System in New York, New York with respect to liabilities or assets consisting of or including Eurocurrency Liabilities (or with respect to any other category of liabilities that includes deposits by reference to which the interest rate on Eurodollar Rate Advances is determined) having a term equal to such Interest Period. "EVENTS OF DEFAULT" has the meaning specified in Section 7.01. "EXCESS CASH FLOW" means, for any period (without duplication): [*] [*] [*] [*] [*] [*] [*] [*] [*] CONFIDENTIAL TREATMENT REQUESTED 19 [*] [*] [*] "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended from time to time, and the regulations promulgated and the rulings issued thereunder. "EXCHANGE AGREEMENT" means the Exchange Agreement dated as of August 1, 1997 among NPAL, Liberty Media Corporation and Liberty IFE, Inc., as such agreement may be amended, supplemented or otherwise modified from time to time in accordance with the terms thereof, but to the extent permitted under the terms of the Loan Documents. "EXCLUDED FOX KIDS SUBSIDIARIES" means any of the Subsidiaries of Fox Kids other than Holdings or any of its direct or indirect Subsidiaries. "EXISTING ADVANCES" has the meaning specified in Preliminary Statement (3) to this Agreement. "EXISTING CREDIT AGREEMENT" has the meaning specified in Preliminary Statement (2) to this Agreement. "EXISTING LENDERS" has the meaning specified in Preliminary Statement (2) to this Agreement. "EXISTING NAHI SUBORDINATED NOTES" has the meaning ascribed to the term "NAHI Subordinated Notes" under the Existing Credit Agreement. "EXISTING REVOLVING CREDIT ADVANCES" means the Existing Advances which constitute "Revolving Credit Advances" under the Existing Credit Agreement. "EXISTING REVOLVING CREDIT LENDER" means any of the Existing Lenders that is owed an Existing Revolving Credit Advance at any time prior to the consummation by such Existing Lender of the sales and assignments referred to in Section 2.01(a). "EXISTING TERM ADVANCES" means the Existing Advances which constitute "Term Advances" under the Existing Credit Agreement. "EXISTING TERM LENDER" means any of the Existing Lenders that is owed an Existing Term Advance at any time prior to the consummation by such Existing Lender of the sales and assignments referred to in Section 2.01(b). 20 "EXTRAORDINARY RECEIPT" means any cash received by or paid to or for the account of any Person other than in the ordinary course of business, including, without limitation, tax refunds, pension plan reversions, proceeds of insurance (other than proceeds of business interruption insurance to the extent such proceeds constitute compensation for lost earnings), condemnation awards (and payments in lieu thereof), indemnity payments and payments in respect of judgments or settlements of litigation or proceedings; provided, however, that Extraordinary Receipts shall not include cash receipts received from proceeds of insurance, condemnation awards (or payments in lieu thereof), indemnity payments or payments in respect of judgments or settlements of litigation or proceedings to the extent that such proceeds, awards or payments (a) are in respect of loss or damage to any Capital Asset or reimbursements of liabilities previously paid by such Person or promptly paid thereafter to any third party that is not an Affiliate of such Person and (b) are applied (or are in respect of expenditures that were previously incurred) to replace or repair such Capital Asset or to reimburse such amounts previously paid or to be paid promptly to any such third party, in each case in accordance with the terms of the Loan Documents and so long as such application is commenced within 90 days after the receipt of such proceeds, awards or payments. "FACILITY" means the Revolving Credit Facility or the Term Facility, as the context may require. "FAIR MARKET VALUE" means, with respect to any property or assets (including, without limitation, any of the Equity Interests) of any Person on any date of determination, the value of the consideration obtainable in a sale of such property or asset in the open market on such date assuming an arm's-length sale that has been arranged without duress or compulsion between a willing seller and a willing and knowledgeable purchaser in a commercially reasonable manner over a reasonable period of time under all conditions necessary or desirable for a fair sale (taking into account the nature and characteristics of such property or asset); provided that the Fair Market Value of any of the property or assets of any of the Loan Parties or any of their respective Subsidiaries shall be determined in good faith by the board of directors (or persons performing similar functions) of such Loan Party or such Subsidiary, as the case may be, and certified by a Responsible Officer of such Loan Party or such Subsidiary in a certificate delivered to the Administrative Agent, on behalf of the Lenders; and provided, however, that any determination of the Fair Market Value of any such property (whether real or personal) or asset that is customarily appraised shall be based upon an appraisal by an independent qualified appraiser when such property or asset is determined in good faith by the board of directors (or persons performing similar functions) of such Loan Party or such Subsidiary to have a Fair Market Value in excess of $25,000,000. "FBC" means Fox Broadcasting Company, a Delaware corporation and the owner of a portion of the issued and outstanding Equity Interests in Fox Kids. "FBC SUB" means Fox Broadcasting Sub, Inc., a Delaware corporation and the owner of a portion of the issued and outstanding Equity Interests in Fox Kids. "FBC SUBORDINATED NOTES" means, collectively the subordinated note of Fox Kids due May 1, 2008 and issued in an aggregate principal amount of $104,573,000 and the subordinated note of Fox Kids due May 1, 2008 and issued in aggregate principal amount of $4,099,000, in 21 each case pursuant to the FBC Subordinated Notes Documents, and any note or notes issued in replacement or substitution therefor. "FBC SUBORDINATED NOTES DOCUMENTS" means the Subordinated Note Agreement dated as of July 31, 1997 (as amended by the First Amendment to the Subordinated Note Agreement dated September 4, 1997 and the Second Amendment to the Subordinated Note Agreement dated October 28, 1997) by and among FBC, Fox Kids and the Administrative Agent, on behalf of the Secured Parties, the FBC Subordinated Notes and all of the other instruments, agreements or other documents pursuant to which the FBC Subordinated Notes are issued or otherwise setting forth the terms of the FBC Subordinated Notes, in each case as such agreement, instrument or other document may be further amended, supplemented or otherwise modified from time to time in accordance with the terms thereof, but to the extent permitted under the terms of the Loan Documents. "FCC" means the Federal Communications Commission of the United States of America or any successor thereto. "FCN HOLDING" has the meaning specified in the recital of parties to this Agreement. "FEDERAL FUNDS RATE" means, for any period, a fluctuating interest rate per annum equal for each day during such period to the weighted average of the rates on overnight federal funds transactions with members of the Federal Reserve System arranged by federal funds brokers, as published for such day (or, if such day is not a Business Day, for the immediately preceding Business Day) by the Federal Reserve Bank of New York or, if such rate is not so published for any day that is a Business Day, the average of the quotations for such day for such transactions received by the Administrative Agent from three federal funds brokers of recognized standing selected by it. "FINAL OFFERING MEMORANDUM" means the Final Offering Memorandum for the Senior Notes dated October 22, 1997 used in connection with the offering and sale thereof pursuant to an exemption from the registration requirements under the Securities Act. "FISCAL QUARTER" means, with respect to Fox Kids or any of its Subsidiaries, the period commencing July 1 in any Fiscal Year and ending on the next succeeding September 30, the period commencing October 1 in any Fiscal Year and ending on the next succeeding December 31, the period commencing January 1 in any Fiscal Year and ending on the next succeeding March 31, or the period commencing April 1 in any Fiscal Year and ending on the next succeeding June 30, as the context may require, or, if any such Subsidiary was not in existence on the first day of any such period, the period commencing on the date on which such Subsidiary is incorporated, organized, formed or otherwise created and ending on the last day of such period. "FISCAL YEAR" means, with respect to Fox Kids or any of its Subsidiaries, the period commencing on July 1 in any calendar year and ending on the next succeeding June 30 or, if any such Subsidiary was not in existence on July 1 in any calendar year, the period commencing on the date on which such Subsidiary is incorporated, organized, formed or otherwise created and ending on the next succeeding June 30. [*] CONFIDENTIAL TREATMENT REQUESTED 22 "FIXED CHARGE COVERAGE RATIO" means, [*] "FKE HOLDINGS" means Fox Kids Europe Holdings, Inc., a California corporation and a direct wholly owned Subsidiary of Saban. "FOREIGN CORPORATION" means any Foreign Subsidiary that constitutes a "controlled foreign corporation" under Section 957 of the Internal Revenue Code. "FOREIGN SUBSIDIARY" means, at any time, any of the direct or indirect Subsidiaries of Holdings that is not a Borrower or a Domestic Subsidiary at such time. "FOREIGN SUBSIDIARY PLEDGE AGREEMENTS" means, collectively, (a) the U.K./FKE Pledge Agreement, (b) the U.K./Saban U.K. Pledge Agreement, (c) the Deed of Pledge dated the Phase II Closing Date among FKE Holdings, T.V.10 and the Administrative Agent, (d) the Amended and Restated Pledge Agreement of Shares dated the Phase II Closing Date among Saban, Saban International, N.V. and the Administrative Agent, (e) the Pledge Agreement dated the Phase II Closing Date between Saban and the Administrative Agent, (f) the Deed of Pledge of Shares dated the Phase II Closing Date among FKE Holdings, Fox Kids Network, Fox Kids France SARL and the Administrative Agent, (g) the Deed of Pledge of Shares dated the Phase II Closing Date among Saban, Saban International Paris SARL and the Administrative Agent and (h) each of the other pledge agreements, assignment agreements (or other similar documents) governed by the laws of a jurisdiction outside of the United States of America that is delivered pursuant to Section 5.02(j), in each of the foregoing cases as amended, supplemented or otherwise modified hereafter from time to time in accordance with the terms hereof and Section 9.01. "FOX KIDS" has the meaning specified in Preliminary Statement (1) to this Agreement. "FOX KIDS GUARANTEE" has the meaning specified in Section 3.01(i)(x). "FOX KIDS NETWORK" means Fox Kids Network-Europe, Inc., a California corporation and a direct wholly owned Subsidiary of Saban. "FOX KIDS OPTIONHOLDERS" means, collectively, Stan Golden, Shuki Levi, Margaret Loesch and Mel Woods and any permitted transferees thereof. "FUNDED INDEBTEDNESS" means, with respect to any Person (without duplication), Indebtedness in respect of the Advances in the case of the Borrowers, and all other Indebtedness 23 of such Person that by its terms matures more than one year after any date of determination or matures within one year from such date but is renewable or extendible, at the option of such Person, to a date more than one year after such date or arises under a revolving credit or similar agreement that obligates the lender or lenders to extend credit during a period of more than one year after such date, in each case determined on a Consolidated basis in accordance with GAAP; provided, however, that the term "Funded Indebtedness" shall not include (a) any Programming Liabilities, Participations or Residuals of any of the Borrowers or any of their respective Subsidiaries incurred in the ordinary course of business or (b) any Contingent Obligations of such Person (if and to the extent such Contingent Obligations would otherwise be included in such term on any date of determination) that are incurred solely to support Indebtedness of one or more Subsidiaries of such Person to the extent such Contingent Obligations are otherwise expressly permitted to be incurred under Section 5.02(b). "FUNDING AGREEMENT" means the Funding Agreement dated as of June 11, 1997 by and among TNCL, NPAL and Fox Kids, as such agreement may be amended, supplemented or otherwise modified from time to time in accordance with the terms thereof, but to the extent permitted under the terms of the Loan Documents. "GAAP" means generally accepted accounting principles in effect from time to time in the United States of America and applied on a consistent basis, subject, however, to the terms of Section 1.03. "GOVERNMENTAL AUTHORITY" means any nation or government, any state, province, city, municipal entity or other political subdivision thereof, and any governmental, executive, legislative, judicial, administrative or regulatory agency, department, authority, instrumentality, commission, board or similar body, whether federal, state, provincial, territorial, local or foreign. "GOVERNMENTAL AUTHORIZATION" means any authorization, approval, consent, franchise, license, covenant, order, ruling, permit, certification, exemption, notice, declaration or similar right, undertaking or other action of, to or by, or any filing, qualification or registration with, any Governmental Authority. "GUARANTEE" has the meaning specified in Section 6.01(a). "GUARANTEE SUPPLEMENT" has the meaning specified in Section 8(b) of the Subsidiaries Guarantee. "GUARANTEED OBLIGATIONS" has the meaning specified in Section 6.01(a). "HAZARDOUS MATERIALS" means: (a) any chemical, material or substance at any time defined as or included in the definition of "hazardous substances", "hazardous wastes", "hazardous materials", "extremely hazardous waste", "acutely hazardous waste", "radioactive waste", "biohazardous waste", "pollutant", "toxic pollutant", "contaminant", "restricted hazardous waste", "infectious waste", "toxic substances", or any other term or expression intended to define, list or classify substances by reason of properties harmful to health, safety or the indoor or outdoor environment (including, without limitation, harmful properties such as ignitability, corrosivity, reactivity, carcinogenicity, toxicity, reproductive toxicity, "TCLP 24 toxicity" or "EP toxicity" or words of similar import under any applicable Environmental Laws); (b) any oil, petroleum, petroleum fraction or petroleum derived substance; (c) any drilling fluids, produced waters and other wastes associated with the exploration, development or production of crude oil, natural gas or geothermal resources; (d) any flammable substances or explosives; (e) any radioactive materials; (f) any asbestos- containing materials; (g) any urea formaldehyde foam insulation; (h) any electrical equipment which contains any oil or dielectric fluid containing polychlorinated biphenyls; (i) any pesticides; (j) any radon gas; and (k) any other chemical, material or substance designated, classified or regulated as hazardous or toxic or as a pollutant or contaminant under any Environmental Law or which could pose a hazard to health, safety or the environment. "HEDGE AGREEMENTS" means, collectively, interest rate swap, cap or collar agreements, interest rate future or option contracts, commodity future or option contracts, currency swap agreements, currency future or option contracts and other similar agreements. "HEDGE BANK" means any Person that is a Lender, in its capacity as a party to a Bank Hedge Agreement. "HOLDINGS" has the meaning specified in the recital of parties to this Agreement. "IFE" has the meaning specified in the recital of parties to this Agreement. "IMPLIED DEBT RATING" means, at any date of determination, the "implied" statistical rating that has been most recently assigned by either S&P or Moody's to any class of long term senior secured debt issued by the Borrowers. For purposes of the foregoing: (a) each such assignment of a statistical rating by S&P or Moody's shall be set forth in a written notice therefrom to the Borrowers (a copy of which shall be delivered to the Administrative Agent); (b) if any rating established by S&P or Moody's shall be changed, such change shall be effective as of the date on which the Administrative Agent receives a copy of the notice from S&P or Moody's referred to in clause (a) of this definition, setting forth such change; and (c) if either S&P or Moody's shall change the basis on which ratings are established by it, each reference to the Implied Debt Rating assigned by S&P or Moody's shall refer to the then equivalent rating by S&P or Moody's, as the case may be. "INDEBTEDNESS" means, with respect to any Person (without duplication): (a) all indebtedness of such Person for borrowed money; (b) all Obligations of such Person for the deferred purchase price of property and assets or services (other than trade payables or other accounts payable incurred in the ordinary course of such Person's business and not past due for more than 90 days after the date on which each such trade payable or account payable was created); 25 (c) all Obligations of such Person evidenced by notes, bonds, debentures or other similar instruments, or upon which interest payments are customarily made; (d) all Obligations of such Person created or arising under any conditional sale or other title retention agreement with respect to property or assets acquired by such Person (even though the rights and remedies of the seller or the lender under such agreement in the event of default are limited to repossession or sale of such property or assets); (e) all Obligations of such Person as lessee under Capitalized Leases; (f) all Obligations, contingent or otherwise, of such Person under acceptance, letter of credit or similar facilities (other than letters of credit given in support of trade payables incurred in the ordinary course of such Person's business and with an expiration date of not more than 90 days after the date on which such letter of credit was issued); (g) all Obligations of such Person to purchase, redeem, retire, defease or otherwise make any payment in respect of any Equity Interests in such Person or in any other Person valued, in the case of any Redeemable Preferred Interests, at the greater of its voluntary or involuntary liquidation preference plus accrued and unpaid dividends (but excluding (i) any such Obligation arising solely as a result of the declaration of a dividend (or similar distribution) on any such Equity Interest of such Person and (ii) in the case of Fox Kids, any such Obligation in respect of the shares of Permitted Preferred Stock issued from time to time thereby); (h) all Obligations of such Person in respect of Hedge Agreements, take-or-pay agreements or other similar arrangements; (i) all Obligations of such Person under any synthetic lease, tax retention operating lease, off-balance sheet loan or similar off- balance sheet financing if the transaction giving rise to such Obligation is considered indebtedness for borrowed money for tax purposes but is classified as an operating lease in accordance with GAAP; (j) all Contingent Obligations; and (k) all Indebtedness referred to in clauses (a) through (j) above of another Person secured by (or for which the holder of such Indebtedness has an existing right, contingent or otherwise, to be secured by) any Lien on property or assets (including, without limitation, accounts and contract rights) owned by such Person, even though such Person has not assumed or become liable for the payment of such Indebtedness, valued, in the case of any such Indebtedness as to which recourse for the payment thereof is expressly limited to the property or assets on which such Lien is granted, at the lesser of (i) the stated or determinable amount of the Indebtedness that is so secured or, if not stated or determinable, the maximum reasonably anticipated liability in respect thereof (assuming such Person is required to perform thereunder) and (ii) the Fair Market Value of such property or assets. 26 The Indebtedness of any Person shall include (i) all Obligations of the types described in clauses (a) through (k) above of any partnership in which such Person is a general partner and (ii) all Obligations of the types described in clauses (a) through (k) above of such Person to the extent such Person remains legally liable in respect thereof, notwithstanding that any such Obligation is deemed to be extinguished under GAAP at any date of determination. "INDEMNIFIABLE MATTERS" has the meaning specified in Section 9.04(a). "INDEMNIFIED PARTY" has the meaning specified in Section 9.04(a). "INFORMATION MEMORANDUM" means the information memorandum dated July 1997 used in connection with the syndication of the Commitments. "INITIAL LENDERS" has the meaning specified in the recital of parties to this Agreement. "INITIAL PLEDGED INDEBTEDNESS" has the meaning specified in Section 1(a)(iii) of the Pledge and Assignment Agreement. "INITIAL PLEDGED INTERESTS" has the meaning specified in Section 1(a)(i) of the Pledge and Assignment Agreement. "INTERCOMPANY NOTES" means the promissory notes, in each case in substantially the form of Exhibit H-1 hereto, evidencing the intercompany Indebtedness outstanding from time to time pursuant to Section 5.02(b)(iii)(C) or 5.02(f)(i). "INTEREST COVERAGE RATIO" means, with respect to Fox Kids and its Subsidiaries for any Measurement Period, the ratio of (a) Adjusted Consolidated EBITDA for such period to (b) Consolidated Cash Interest Expense of Fox Kids and its Subsidiaries for such period. "INTEREST PERIOD" means, for each of the Eurodollar Rate Advances comprising part of the same Borrowing, the period commencing on the date of such Eurodollar Rate Advance or the date of the Conversion of any Base Rate Advance into such Eurodollar Rate Advance, as the case may be, and ending on the last day of the period selected by the Borrower requesting such Borrowing or Conversion pursuant to the provisions below and, thereafter, each subsequent period commencing on the last day of the immediately preceding Interest Period and ending on the last day of the period selected by such Borrower pursuant to the provisions set forth below. The duration of each such Interest Period shall be one, two, three or six months and, subject to clause (c) of this definition, nine months as the Borrower requesting such Borrowing or Conversion may, upon notice received by the Administrative Agent not later than 11:00 A.M. (New York City time) on the third Business Day prior to the first day of such Interest Period, select; provided, however, that: (a) such Borrower may not select any Interest Period with respect to any Eurodollar Rate Advance comprising part of a Term Borrowing that ends after any principal repayment installment date for the Term Facility or any Eurodollar Rate Advance comprising part of a Revolving Credit Borrowing that ends after any scheduled commitment reduction date for the related Revolving Credit Facility unless, after giving 27 effect to such selection, the aggregate principal amount of all Base Rate Advances and of all Eurodollar Rate Advances having Interest Periods that end on or prior to such principal repayment installment date or such scheduled commitment reduction date, as the case may be, shall be at least equal to the aggregate principal amount of Advances under the Term Facility or the applicable Revolving Credit Facility, respectively, due and payable on or prior to such date; (b) Interest Periods commencing on the same date for Eurodollar Rate Advances comprising part of the same Borrowing shall be of the same duration; (c) the Borrower requesting such Borrowing or Conversion shall not be entitled to select an Interest Period having a duration of nine months unless, by 2:00 P.M. (New York City time) on the third Business Day prior to the first day of such Interest Period, each of the Appropriate Lenders notifies the Administrative Agent that such Appropriate Lender will be providing funding for such Borrowing with such Interest Period (the failure of any Appropriate Lender to so respond by such time being deemed for all purposes of this Agreement as an objection by such Appropriate Lender to the requested duration of such Interest Period); provided that if any of the Appropriate Lenders objects (or is deemed to have objected) to the requested duration of such Interest Period, the duration of the Interest Period for such Borrowing shall be one, two, three or six months, as specified by such Borrower in the applicable Notice of Borrowing or Notice of Conversion as the desired alternative to an Interest Period of nine months therefor; (d) whenever the last day of any Interest Period would otherwise occur on a day other than a Business Day, the last day of such Interest Period shall be extended to occur on the next succeeding Business Day, provided, however, that, if such extension would cause the last day of such Interest Period to occur in the next succeeding calendar month, the last day of such Interest Period shall occur on the immediately preceding Business Day; and (e) whenever the first day of any Interest Period occurs on a day of an initial calendar month for which there is no numerically corresponding day in the calendar month that succeeds such initial calendar month by the number of months equal to the number of months in such Interest Period, such Interest Period shall end on the last Business Day of such succeeding calendar month. "INTERNAL REVENUE CODE" means the Internal Revenue Code of 1986, as amended from time to time, and the regulations promulgated and the rulings issued thereunder. "INVESTMENT" means, with respect to any Person, any loan or advance to such Person, any purchase or other acquisition of Equity Interests in, or other obligations or other securities of, such Person, any capital contribution to such Person or any other investment in such Person, including, without limitation, any arrangement pursuant to which the investor incurs Indebtedness of the types referred to in clause (j) or (k) of the definition of "Indebtedness" set forth in this Section 1.01 in respect of such Person. [*] CONFIDENTIAL TREATMENT REQUESTED 28 "INVESTMENT GRADE PERFORMANCE TEST" means [*] [*] [*] "LENDER INDEMNIFIED COSTS" has the meaning specified in Section 8.05. "LENDERS" means, collectively, the Initial Lenders and each Person that becomes a Lender pursuant to Section 9.08. "LIEN" means, with respect to any Person, (a) any mortgage, lien (statutory or other), pledge, hypothecation, security interest, charge or other preference or encumbrance of any kind (including, without limitation, any agreement to give any of the foregoing), (b) any sale of accounts receivable or chattel paper, or any assignment, deposit arrangement or lease intended as, or having the effect of, security, (c) any easement, right of way or other encumbrance on title to real property or (d) any other interest or title of any vendor, lessor, lender or other secured party to or of such Person under any conditional sale or other title retention agreement or any Capitalized Lease or upon or with respect to any property or asset of such Person (including, in the case of Equity Interests, voting trust agreements and other similar arrangements). "LOAN DOCUMENTS" means, collectively, (a) for all purposes of this Agreement (other than Article VI) and the Notes and any amendment, supplement or other modification hereof or thereof and for all other purposes other than for purposes of Article VI, the Fox Kids Guarantee, the Subsidiaries Guarantee, the Collateral Documents, the Intercompany Notes and the TNCL Group Subordinated Notes, (i) this Agreement, (ii) the Notes, (iii) the Fox Kids Guarantee, (iv) the Subsidiaries Guarantee, (v) the Collateral Documents, (vi) the Assumption Agreement and (vii) each of the other agreements evidencing any of the Obligations of any of the Loan Parties secured by the Collateral Documents and (b) for all purposes of Article VI, the Fox Kids Guarantee, the Subsidiaries Guarantee, the Collateral Documents, the Intercompany Notes and the TNCL Group Subordinated Notes, (i) this Agreement, (ii) the Notes, (iii) the Fox Kids Guarantee, (iv) the Subsidiaries Guarantee, (v) the Collateral Documents, (vi) the Assumption 29 Agreement, (vii) the Bank Hedge Agreements and (viii) each of the other agreements evidencing any of the Obligations of any of the Loan Parties secured by the Collateral Documents, in each case as amended, supplemented or otherwise modified hereafter from time to time in accordance with the terms thereof and Section 9.01. "LOAN PARTIES" means, collectively, Fox Kids, Holdings, each of the Borrowers and each of the Restricted Subsidiaries. "MATERIAL ADVERSE EFFECT" means a material adverse effect on (a) the business, condition (financial or otherwise), operations, performance, properties or prospects of Fox Kids and its Subsidiaries, taken as a whole, (b) the rights and remedies of the Administrative Agent or any of the Lenders under any of the Loan Documents or any of the Related Documents (unless the material adverse effect on any such rights and remedies, either individually or in the aggregate, would apply solely to an immaterial portion of the Collateral and could not reasonably be expected to impair the repayment of the Advances and the payment of all other amounts owing under or in respect of the Loan Documents in a timely manner) or (c) the ability of any of the Loan Parties to perform any of their respective Obligations under any of the Loan Documents or any of the Related Documents to which it is or is to be a party (unless the material adverse effect on any such ability, either individually or in the aggregate, would apply solely to the immaterial nonpayment Obligations of any of the Subsidiaries of Fox Kids (other than any of the other Borrowers)). "MEASUREMENT PERIOD" means, at any date of determination, the most recently completed four consecutive Fiscal Quarters on or immediately prior to such date or, if less than four consecutive Fiscal Quarters have been completed since the Phase II Closing Date, the Fiscal Quarters that have been completed since the Phase II Closing Date; provided, however, that any calculation of Consolidated EBITDA and Consolidated Cash Interest Expense for the first Measurement Period ending after the Effective Date shall be multiplied by two and any calculation of Consolidated EBITDA and Consolidated Cash Interest Expense for the second Measurement Period ending after the Effective Date shall be multiplied by 1.33. "MERGER" has the meaning specified in Preliminary Statement (2) to this Agreement. "MERGER CORPORATION" has the meaning specified in Preliminary Statement (2) to this Agreement. "MOODY'S" means Moody's Investors Service, Inc. "MTM ENTERTAINMENT" means MTM Entertainment, Inc., a Delaware corporation and an indirect Subsidiary of IFE. "MULTIEMPLOYER PLAN" means a multiemployer plan (as defined in Section 4001(a)(3) of ERISA) to which any of the Loan Parties or any of the ERISA Affiliates (a) is making or accruing an obligation to make contributions or (b) has within any of the preceding five plan years made or accrued an obligation to make contributions and with respect to which any of the Loan Parties or any of the ERISA Affiliates could reasonably be expected to have liability. [*] CONFIDENTIAL TREATMENT REQUESTED 30 "MULTIPLE EMPLOYER PLAN" means a single employer plan (as defined in Section 4001(a)(15) of ERISA) that (a) is maintained for employees of any of the Loan Parties or any of the ERISA Affiliates and at least one Person other than the Loan Parties and the ERISA Affiliates or (b) was so maintained and in respect of which any of the Loan Parties or any of the ERISA Affiliates could reasonably be expected to have liability under Section 4064 or 4069 of ERISA in the event such plan has been or were to be terminated. "MURDOCH FAMILY" means one or more of (a) K. Rupert Murdoch, his wife, parents, children or more remote issue, or brothers or sisters or children or more remote issue of a brother or sister, (b) any Person directly or indirectly controlled by one or more of the Persons referred to in clause (a) of this definition or (c) a trust in which the majority of the trustees are Persons referred to in clause (a) or (b) of this definition or can be removed or replaced by one or more of the Persons referred to in clause (a) or (b) of this definition. "NAHI" means News America Holdings Incorporated, a Delaware corporation and an indirect wholly owned Subsidiary of TNCL. "NAHI SUBORDINATED NOTES" means the subordinated note of Fox Kids due May 1, 2008 and issued in an aggregate principal amount of $345,513,865 pursuant to the NAHI Subordinated Notes Documents, and any note or notes issued in replacement or substitution therefor. "NAHI SUBORDINATED NOTES DOCUMENTS" means the Subordinated Note Agreement dated August 29, 1997 (as amended by the First Amendment to the Subordinated Note Agreement dated October 28, 1997) by and among NAHI, Fox Kids and the Administrative Agent, on behalf of the Secured Parties, the NAHI Subordinated Notes and all of the other instruments, agreements or other documents pursuant to which the NAHI Subordinated Notes are issued or otherwise setting forth the terms of the NAHI Subordinated Notes, in each case as such agreement, instrument or other document may be further amended, supplemented or otherwise modified from time to time in accordance with the terms thereof, but to the extent permitted under the terms of the Loan Documents. "NCP PERCENTAGE" means [*] "NET CASH PROCEEDS" means, with respect to any sale, lease, transfer or other disposition of any property or asset, or the incurrence or issuance of any Indebtedness, or the sale or issuance of any Equity Interests in any Person, or any Extraordinary Receipt received by or paid to or for the account of any Person, as the case may be, the aggregate amount of cash received from time to time (whether as initial consideration or through payment or disposition of deferred 31 consideration) by or on behalf of such Person for its own account in connection with any such transaction, after deducting therefrom only: (a) reasonable and customary brokerage commissions, underwriting fees and discounts, legal fees, finder's fees, filing and registration fees with the Securities and Exchange Commission (or any similar Governmental Authority or any national or international securities exchange) and other similar fees and commissions; (b) the amount of taxes payable in connection with or as a result of such transaction; (c) in the case of any sale, lease, transfer or other disposition of any property or asset, the outstanding principal amount of, the premium or penalty, if any, on, and any accrued and unpaid interest on, any Indebtedness (other than the Indebtedness under or in respect of the Loan Documents) that is secured by a Lien on the property and assets subject to such sale, lease, transfer or other disposition and is required to be repaid under the terms thereof as a result of such sale, lease, transfer or other disposition; and (d) in the case of any sale, lease, transfer or other disposition of any property or asset, the amount required to be reserved, in accordance with GAAP as in effect on the date on which the Net Cash Proceeds from such sale, lease, transfer or other disposition are determined, and so reserved, against liabilities under indemnification obligations, liabilities related to environmental matters or other similar contingent liabilities associated with the property and assets subject to such sale, lease, transfer or other disposition that are required to be so provided for under the terms of the documentation for such sale, lease, transfer or other disposition; in each case to the extent, but only to the extent, that the amounts so deducted are properly attributable to such transaction or to the property or asset that is the subject thereof and (i) in the case of clauses (a) and (c) of this definition, are actually paid at the time of receipt of such cash to a Person that is not an Affiliate of such Person or any of the Loan Parties or of any Affiliate of any of the Loan Parties and (ii) in the case of clauses (b) and (d) of this definition, are actually paid at the time of receipt of such cash to a Person that is not an Affiliate of such Person or any of the Loan Parties or any Affiliate of any of the Loan Parties or, so long as such Person is not otherwise indemnified therefor, are reserved for in accordance with GAAP at the time of receipt of such cash based upon such Person's reasonable estimate of such taxes or contingent liabilities, as the case may be; provided, however, that if, at the time such taxes or such contingent liabilities are actually paid or otherwise satisfied, the amount of the reserve therefor exceeds the amount paid or otherwise satisfied, then the Borrowers shall reduce the Commitments in accordance with the terms of Section 2.04(b)(iv), and shall prepay the outstanding Advances in accordance with the terms of Section 2.05(b), in an amount equal to the amount of such excess reserve. "NEW SUBSIDIARY" has the meaning specified in Section 5.02(j). "NOTE" means a Revolving Credit Note or a Term Note, as the context may require. "NOTICE OF BORROWING" has the meaning specified in Section 2.02(a). 32 "NOTICE OF CONVERSION" has the meaning specified in Section 2.08(a). "NPAL" means News Publishing Australia Limited, a Delaware corporation. "NPAL CHARTER AMENDMENT" means the Certificate of Amendment of the Certificate of Incorporation of NPAL, which, among other things, authorizes NPAL to issue up to 500,000 shares of NPAL Preferred Stock, par value $0.001 per share, and describes the designations, voting powers, preferences and relative, participating, optional and other special rights of such NPAL Preferred Stock and the qualifications, limitations and restrictions thereof. "NPL" means the National Priorities List under CERCLA. "OBLIGATION" means, with respect to any Person, any payment, performance or other obligation of such Person of any kind, including, without limitation, any liability of such Person on any claim, whether or not the right of any creditor to payment in respect of such claim is reduced to judgment, liquidated, unliquidated, fixed, contingent, matured, disputed, undisputed, legal, equitable, secured or unsecured, and whether or not such claim is discharged, stayed or otherwise affected by any proceeding of the type referred to in Section 7.01(f). Without limiting the generality of the immediately preceding sentence, the Obligations of the Loan Parties under or in respect of the Loan Documents include (a) the obligation to pay principal, interest, commissions, charges, expenses, fees, attorneys' fees and disbursements, indemnities and other amounts payable by any of the Loan Parties under or in respect of any of the Loan Documents and (b) the obligation of any of the Loan Parties to reimburse any amount in respect of any of the items described above in clause (a) of this definition that the Administrative Agent or any of the Lenders, in its sole discretion, may elect to pay or advance on behalf of such Loan Party. "OECD" means the Organization for Economic Cooperation and Development. "OPEN YEAR" means, with respect to any Person, any year for which a United States federal income tax return has been filed by or on behalf of such Person and for which the expiration of the applicable statute of limitations for assessment, reassessment or collection has not occurred (whether by reason of extension or otherwise). "ORIGINAL BORROWERS" has the meaning specified in Preliminary Statement (1) to this Agreement. "ORIGINAL CREDIT AGREEMENT" has the meaning specified in Preliminary Statement (1) to this Agreement. "ORIGINAL LENDER" has the meaning specified in Preliminary Statement (1) to this Agreement. "OTHER TAXES" has the meaning specified in Section 2.11(b). "PARTICIPATIONS" means all amounts (other than Residuals) payable to any Person other than any of the Loan Parties or any of their respective Affiliates in connection with the development, acquisition, production, exhibition, syndication, exploitation or distribution of any [*] CONFIDENTIAL TREATMENT REQUESTED 33 item of Product, the payment of which is contingent upon and payable only to the extent of the receipt by the obligor of revenues from the exhibition, syndication or exploitation of such item of Product. "PBGC" means the Pension Benefit Guaranty Corporation or any successor thereto. "PERFORMANCE LEVEL" means Performance Level I, Performance Level II, Performance Level III, Performance Level IV or Performance Level V, as the context may require. For purposes of determining the Performance Level at any date of determination: (a) not more than [*] in the Performance Level (thereby resulting in [*] in the Applicable Margin and the Applicable Percentage) shall occur in any [*] period; and (b) no change in the Performance Level shall be effective until [*] Business Days after the date on which the Administrative Agent receives Consolidated financial statements of Holdings and its Subsidiaries pursuant to (and satisfying all of the requirements of) Section 5.03(b) or 5.03(c) reflecting such change and the related certificate pursuant to Section 5.03(d); provided, however, that if Holdings or the Borrowers have not submitted to the Administrative Agent all of the information required under this clause (b) within [*] Business Days after the date on which such information is otherwise required under Section 5.03(b) or 5.03(c) and Section 5.03(d), as the case may be, the Performance Level shall be deemed to be at Performance Level V for so long as such information has not been submitted. "PERFORMANCE LEVEL I" means, at any date of determination, that Holdings and its Subsidiaries shall have maintained a Senior Leverage Ratio of less than [*] for the most recently completed Measurement Period prior to such date. "PERFORMANCE LEVEL II" means, at any date of determination, that (a) the Performance Level does not meet the requirements of Performance Level I and (b) Holdings and its Subsidiaries shall have maintained a Senior Leverage Ratio of less than [*] for the most recently completed Measurement Period prior to such date. "PERFORMANCE LEVEL III" means, at any date of determination, that (a) the Performance Level does not meet the requirements of Performance Level I or Performance Level II and (b) Holdings and its Subsidiaries shall have maintained a Senior Leverage Ratio of less than [*] for the most recently completed Measurement Period prior to such date. "PERFORMANCE LEVEL IV" means, at any date of determination, that (a) the Performance Level does not meet the requirements of Performance Level I, Performance Level II or Performance Level III and (b) Holdings and its Subsidiaries shall have maintained a Senior Leverage Ratio of less than [*] for the most recently completed Measurement Period prior to such date. [*] CONFIDENTIAL TREATMENT REQUESTED 34 "PERFORMANCE LEVEL V" means, at any date of determination, that the Performance Level does not meet the requirements of Performance Level I, Performance Level II, Performance Level III or Performance Level IV. "PERMITTED AFFILIATE INVESTMENT" means [*] "PERMITTED AFFILIATE SUBORDINATED NOTES" means one or more notes, in each case in the form of Exhibit H-2 hereto, issued from time to time by Fox Kids to any of the members of the TNCL Group or the Saban Group and having a maturity date that is not earlier than (and no scheduled or mandatory redemption or repurchase date prior to) the tenth anniversary of the date of issuance of any such note; provided that on the date on which each of the Permitted Affiliate Subordinated Notes is issued, Fox Kids shall deliver to the Administrative Agent, on behalf of the Lenders, a certificate of a Responsible Officer of Fox Kids, certifying in reasonable detail the intended use by Fox Kids and/or any of its Subsidiaries of the proceeds of such issuance. "PERMITTED FILM FINANCING" means, [*] "PERMITTED LIENS" means [*] [*] [*] [*] CONFIDENTIAL TREATMENT REQUESTED 35 [*] [*] [*] [*] [*] [*] [*] [*] "PERMITTED PREFERRED STOCK" means Preferred Interests in Fox Kids issued from time to time to one or more of its Affiliates that have (a) no dividends required to be paid in cash, and no scheduled or mandatory redemption or repurchase dates, in whole or in part, prior to the 36 payment in full in cash of all of the Obligations of the Loan Parties under or in respect of the Loan Documents and any extension, refinancing or replacement thereof, and the termination of all commitments to extend credit under any of the foregoing, (b) no voting rights and (c) no other conditions, covenants or events of default; provided that on the date on which each of the shares of Permitted Preferred Stock is issued, Fox Kids shall deliver to the Administrative Agent, on behalf of the Lenders, a certificate of a Responsible Officer of Fox Kids, certifying in reasonable detail the intended use by Fox Kids and/or any of its Subsidiaries of the proceeds of such issuance. "PERSON" means an individual, partnership, corporation (including a business trust), limited liability company, unlimited liability company, joint stock company, trust, unincorporated association, joint venture or other entity, or a government or any political subdivision or agency thereof. "PHASE II CLOSING DATE" means September 4, 1997, the date on which the initial borrowing under the Existing Credit Agreement occurred following the satisfaction or waiver of all of the conditions precedent to such borrowing set forth in Sections 3.01 and 3.03 of the Existing Credit Agreement. "PLAN" means a Single Employer Plan and/or a Multiple Employer Plan, as the context may require. "PLEDGE AGREEMENT SUPPLEMENT" has the meaning specified in Section 18(b) of the Pledge and Assignment Agreement. "PLEDGE AND ASSIGNMENT AGREEMENT" has the meaning specified in Section 3.01(i)(viii). "PREFERRED INTERESTS" means, with respect to any Person, Equity Interests issued by such Person that are entitled to a preference or priority over any other Equity Interests issued by such Person upon any distribution of such Person's property and assets, whether by dividend or upon liquidation. "PRE-MERGER IFE" has the meaning specified in Preliminary Statement (1) to this Agreement. "PREPRINT MATERIALS" means, with respect to any item of Product, the original motion picture negative for such item of Product, the optical soundtrack negative for such item of Product, the magnetic soundtrack (consisting of separate mixed dialogue and separate mixed music and effects tracks) for such item of Product and/or such other materials as are necessary to duplicate such Product (including interpositives, negatives, duplicate negatives, internegatives, color reversals, intermediates, lavenders, fine grain master prints and matrices, and all other forms of preprint materials that may be necessary or useful to produce prints or other copies or additional preprint materials), whether now known or hereafter devised. "PRIMARY OBLIGATION" has the meaning specified in the definition of "Contingent Obligation" set forth in this Section 1.01. 37 "PRIMARY OBLIGOR" has the meaning specified in the definition of "Contingent Obligations" set forth in this Section 1.01. "PRO FORMA CONSOLIDATED EBITDA" means, at any date of determination, an amount equal to the Consolidated EBITDA of Holdings and its Subsidiaries for the most recently completed Measurement Period prior to such date for which Holdings and/or the Borrowers have delivered Consolidated financial statements of Holdings and its Subsidiaries pursuant to Section 5.03(b) or 5.03(c); provided that with respect to any sale, transfer or other disposition of any property or assets of any of the Borrowers or any of their respective Subsidiaries pursuant to Section 5.02(d)(viii) or 5.02(d)(ix), if any of the Borrowers or any of their respective Subsidiaries shall have purchased or otherwise acquired or shall have sold, transferred or otherwise disposed of any other property or assets at any time on or after the first day of such Measurement Period and prior to such date, such Consolidated EBITDA shall be increased (in the case of each such purchase or other acquisition) or reduced (in the case of each such sale, transfer or other disposition) by the Consolidated EBITDA of Holdings and its Subsidiaries that would have been directly contributed thereto by such other property or assets during such Measurement Period, determined in good faith by the board of directors of the applicable Borrower on a pro forma basis as though such Borrower or the Subsidiary of such Borrower that is effecting such transaction had purchased or otherwise acquired or had sold, transferred or otherwise disposed of such other property or assets on the first day of such Measurement Period. "PRO RATA SHARE" of any amount means, with respect to any of the Lenders at any time, the product of (a) a fraction the numerator of which is the amount of such Lender's Commitment under the applicable Facility or Facilities at such time and the denominator of which is the aggregate amount of such Facility or Facilities at such time and (b) such amount. "PRODUCT" means any feature or nonfeature motion picture, television program, series, miniseries, pilot, movie-of-the-week, special, animated cartoon, interactive game, short or other type of recorded audiovisual production (whether now existing or hereafter created, devised, developed or acquired) (including, without limitation, the film and television libraries of the Borrowers and their respective Subsidiaries), whether made for or distributed in any market, including, without limitation, theatrical, nontheatrical, television, home video or exhibition in any other market or medium, whether now existing or hereafter created, devised or developed and whether produced, recorded, distributed, performed or exhibited on or by photographic film, videotape, wire, disc, cartridge, cassette or any other means, methods or devices now existing or hereafter created, devised or developed and further including, without limitation, all exposed and developed negative film, soundtracks, positive prints, cutouts and trims connected with any such Product, whether or not in completed form or in a state of completion, and all related goods and physical properties, including, without limitation, exposed film, developed film, positives, negatives, prints, answer prints, special effects, Preprint Materials, soundtracks, recordings, audio and video tape and discs of all types and gauges, cutouts, trims and any and all other physical properties of every kind and nature relating to any such Product in whatever state of completion, and all duplicates, drafts, versions, variations and copies of each thereof, all rights to produce, release, sell, distribute, lease, perform, market, license, promote, merchandise, exhibit, broadcast, reproduce, record, publicize or otherwise exploit the foregoing and all Special Assets and any and all rights therein, in any manner and in any media whatsoever throughout any territory, including, without limitation, free, pay, toll, cable, sustaining, subscription, sponsored 38 and direct satellite broadcast, in theaters, nontheatrically, on cassettes, cartridges and discs and by any and all other scientific, mechanical or electronic means, methods, processes or devices now known or hereafter conceived, devised or created. "PROGRAMMING AMORTIZATION" means, for any period, that portion of all of the Programming Rights of the Subsidiaries of Fox Kids that are expensed on the Consolidated statement of operations of Fox Kids and its Subsidiaries for such period. "PROGRAMMING LIABILITIES" means all outstanding Indebtedness of the type described in clause (b) of the definition of "Indebtedness" set forth in this Section 1.01 that is incurred by any of the Borrowers or any of their respective Subsidiaries to acquire, produce, exhibit, syndicate, exploit, license or distribute television films or other programming in the ordinary course of business. "PROGRAMMING RIGHTS" means the rights to distribute, exhibit, syndicate and exploit television films and other programming acquired by any of the Subsidiaries of Fox Kids under license agreements and other similar arrangements for use on the cable networks of IFE or any of the other Subsidiaries of Fox Kids and for distribution and relicensing to other Persons, which rights shall include the costs of programming (including films-in-progress) and allocated overhead (which shall be capitalized as incurred). "REDEEMABLE" means, with respect to any Equity Interest, any Indebtedness or any other right or Obligation, any such Equity Interest, Indebtedness, right or Obligation that (a) the issuer has undertaken to redeem at a fixed or determinable date or dates, whether by operation of a sinking fund or otherwise, or upon the occurrence of a condition not solely within the control of the issuer or (b) is redeemable at the option of the holder. "REFERENCE BANKS" means Citibank, Chase Manhattan Bank and BankBoston or, in the event that any of such commercial banks ceases to be a Lender at any time, any other commercial bank designated by Holdings and approved by the Required Lenders as constituting a "Reference Bank" hereunder. "REFINANCING" has the meaning specified in Preliminary Statement (3) to this Agreement. "REGISTER" has the meaning specified in Section 9.08(d). "RELATED DOCUMENTS" means the Exchange Agreement, the Funding Agreement, the NPAL Charter Amendment, the Stockholders Agreement, the Series A Certificate of Designation, the FBC Subordinated Notes Documents and the NAHI Subordinated Notes Documents and each of the other instruments, agreements or documents (other than correspondence) setting forth the terms of or otherwise relating to the Refinancing. "REQUIRED LENDERS" means, at any time, Lenders owed or holding not less than a majority in interest of the sum of (a) the aggregate principal amount of all Advances outstanding at such time, (b) the aggregate unused Term Commitments at such time and (c) the aggregate Unused Revolving Credit Commitments at such time; provided, however, that if any of the Lenders shall be a Defaulting Lender at such time, there shall be excluded from the determination 39 of Required Lenders at such time (i) the aggregate principal amount of all Advances owing to such Defaulting Lender and outstanding at such time, (ii) the unused portion of the Term Commitment of such Defaulting Lender at such time and (iii) the Unused Revolving Credit Commitment of such Defaulting Lender at such time. "REQUIRED PRINCIPAL PAYMENTS" means, with respect to any Person for any period, the sum of all regularly scheduled principal payments or redemptions and all required prepayments, repurchases, redemptions or similar acquisitions for value of outstanding Funded Indebtedness made during such period, but excluding any such payments to the extent refinanced through the incurrence of additional Indebtedness otherwise expressly permitted under Section 5.02(b)(iii)(N). "REQUIREMENTS OF LAW" means, with respect to any Person, all laws, constitutions, statutes, treaties, ordinances, rules and regulations, all orders, writs, decrees, injunctions, judgments, determinations or awards of an arbitrator, a court or any other Governmental Authority, and all Governmental Authorizations, binding upon or applicable to such Person or to any of its properties, assets or businesses. "RESIDUALS" means all amounts payable by any of the Borrowers or any of their respective Subsidiaries pursuant to guild agreements or collective bargaining agreements in connection with the exhibition, syndication, exploitation or distribution of any item of Product. "RESPONSIBLE OFFICER" means, with respect to Fox Kids or any of its Subsidiaries, the chief executive officer, the president, the chief financial officer, the principal accounting officer or the treasurer (or the equivalent of any of the foregoing) or any other officer, partner or member (or person performing similar functions) of Fox Kids or any such Subsidiary responsible for overseeing the administration of, or reviewing compliance with, all or any portion of this Agreement or any of the other Loan Documents. "RESTRICTED SUBSIDIARY" means (a) any of the wholly owned Domestic Subsidiaries or (b) at the option of Holdings, any of the other Subsidiaries of Holdings (other than any of the other Borrowers) (i) that executes and delivers a Guarantee Supplement and a Pledge Agreement Supplement, (ii) in which 100% of the issued and outstanding Equity Interests are pledged to the Administrative Agent, on behalf of the Secured Parties, pursuant to the applicable Collateral Documents and (iii) that delivers such other agreements, opinions, certificates and other documents as the Administrative Agent, or the Required Lenders through the Administrative Agent, shall reasonably request; provided, however, that none of the Special Purpose Vehicles shall constitute a Restricted Subsidiary. "REVOLVING CREDIT ADVANCES" has the meaning specified in Section 2.01(a). "REVOLVING CREDIT BORROWING" means a borrowing consisting of simultaneous Revolving Credit Advances of the same Type made by (or, in the case of the Existing Revolving Credit Advances, deemed to have been made by) the Revolving Credit Lenders. "REVOLVING CREDIT COMMITMENT" means, with respect to any of the Revolving Credit Lenders at any time, the amount set forth opposite such Revolving Credit Lender's name on Part B of Schedule I hereto under the caption "Revolving Credit Commitment" or, if such Revolving 40 Credit Lender has entered into one or more Assignments and Acceptances, the amount set forth for such Revolving Credit Lender in the Register maintained by the Administrative Agent pursuant to Section 9.08(d) as such Revolving Credit Lender's "Revolving Credit Commitment", as such amount may be reduced at or prior to such time pursuant to Section 2.04. "REVOLVING CREDIT FACILITY" means, at any time, the aggregate Revolving Credit Commitments of all of the Revolving Credit Lenders at such time. "REVOLVING CREDIT LENDER" means, at any time, any of the Lenders that has a Revolving Credit Commitment at such time. "REVOLVING CREDIT NOTE" means a promissory note of an Appropriate Borrower payable to the order of any of the Revolving Credit Lenders, in substantially the form of Exhibit A-1 hereto, evidencing the aggregate indebtedness of such Appropriate Borrower to such Revolving Credit Lender resulting from the Revolving Credit Advances made by (or, in the case of the Existing Revolving Credit Advances, deemed to have been made by) such Revolving Credit Lender. "RIGHTS IN PRODUCT" means (a) any right, whether arising under written contracts or otherwise, to sell, produce, distribute, subdistribute, exhibit, syndicate, lease, sublease, license, sublicense or otherwise exploit any item of Product, including rights under so-called "pick up" arrangements and other contracts and agreements relating to the acquisition of any item of Product or any interest therein in any market, including the theatrical, nontheatrical, stage, television (including broadcast, cable and pay television) and home markets, whether by film, videotape, cassette cartridge or disc or by any other means, method, process or device now known or hereafter developed, (b) any right to sell trailer and advertising accessories relating to any item of Product, (c) any sequel, series, serial, reissue or re-make rights relating to any item of Product and (d) any rights to exploit any element or component of any item of Product or any ancillary rights relating to any item of Product, including merchandising and character rights, stage rights, sound track recording rights and music publishing rights relating to any music embodied in or written for any item of Product, including the right to grant licenses to print, perform or mechanically reproduce such music. "S&P" means Standard & Poor's Ratings Services, a division of The McGraw-Hill Companies, Inc. "SABAN" has the meaning specified in the recital of parties to this Agreement. "SABAN GROUP" means, collectively, Haim Saban, Celia Enterprises L.P., a California limited partnership, Merlot Investments, a California general partnership, Silverlight Enterprises, L.P., a California limited partnership, and Quartz Enterprises L.P., a California limited partnership. "SECURED OBLIGATIONS" has the meaning specified in Section 2 of the Pledge and Assignment Agreement. 41 "SECURED PARTIES" means, collectively, the Agents, the Lenders, the Hedge Banks and the other Persons, if any, the Obligations owing to which are or are purported to be secured by the Collateral under the terms of the Collateral Documents. "SECURITIES ACT" means the Securities Act of 1933, as amended, and the regulations promulgated and the rulings issued thereunder. "SENIOR LEVERAGE RATIO" means, with respect to Holdings and its Subsidiaries at any date of determination, the ratio of (a) Adjusted Funded Indebtedness of Holdings and its Subsidiaries at such date to (b) Consolidated EBITDA of Holdings and its Subsidiaries for the most recently completed Measurement Period prior to such date. "SENIOR NOTES" means, collectively, (a) the 9-1/4% senior notes due 2007 in an aggregate principal amount of $475,000,000 to be issued and sold by Fox Kids on or prior to the Effective Date pursuant to the terms of the applicable Senior Notes Indenture and (a) the 10-1/4% senior discount notes due 2007 having an accreted value on the date of purchase of $375,000,634 (and an aggregate principal amount at maturity of $618,670,000) to be issued and sold by Fox Kids on or prior to the Effective Date pursuant to the terms of the applicable Senior Notes Indenture. "SENIOR NOTES DOCUMENTS" means the Senior Notes Indentures, the Senior Notes and all of the other agreements, instruments and other documents pursuant to which the Senior Notes will be issued or otherwise setting forth the terms of the Senior Notes, in each case as such agreement, instrument or other document may be amended, supplemented or otherwise modified from time to time in accordance with the terms thereof, but to the extent permitted under the terms of the Loan Documents. "SENIOR NOTES INDENTURES" means, collectively, (a) the Indenture dated on or about the Effective Date between Fox Kids and The Bank of New York, as Trustee, and (b) the Indenture dated on or about the Effective Date between Fox Kids and The Bank of New York, as Trustee, in each case as such agreement, instrument or document may be amended, supplemented or otherwise modified hereafter from time to time in accordance with the terms thereof, but to the extent permitted under the terms of the Loan Documents. "SERIES A CERTIFICATE OF DESIGNATION" means the Certificate of Designation of the Series A Preferred Stock, which describes the designation and amount thereof and the voting powers, preferences and relative, participating, optional and other special rights of the shares of such series and the qualifications, limitations and restrictions thereof, as amended, supplemented or otherwise modified from time to time in accordance with the terms thereof, but to the extent permitted under the terms of the Loan Documents. "SERIES A PREFERRED STOCK" means the 345,000 shares of Series A Preferred Stock of Fox Kids, par value $0.001 per share, issued to Liberty IFE, Inc. in exchange for all of the Equity Interests in Pre-Merger IFE owned thereby and all Indebtedness of Pre-Merger IFE owing thereto. "SINGLE EMPLOYER PLAN" means a single employer plan (as defined in Section 4001(a)(15) of ERISA) that (a) is maintained for employees of any of the Loan Parties or any of the ERISA 42 Affiliates and no Person other than the Loan Parties and the ERISA Affiliates or (b) was so maintained and in respect of which any of the Loan Parties or any of the ERISA Affiliates could reasonably be expected to have liability under Section 4069 of ERISA in the event such plan has been or were to be terminated. "SOLVENT" means, with respect to any Person on any date of determination, that, on such date: (a) the fair value of the property and assets of such Person is greater than the total amount of liabilities (including, without limitation, contingent liabilities) of such Person; (b) the present fair salable value of the property and assets of such Person is not less than the amount that will be required to pay the probable liability of such Person on its debts as they become absolute and matured; (c) such Person does not intend to, and does not believe that it will, incur debts or liabilities beyond such Person's ability to pay such debts and liabilities as they mature; and (d) such Person is not engaged in business or in a transaction, and is not about to engage in business or in a transaction, for which such Person's property and assets would constitute an unreasonably small capital. The amount of contingent and unliquidated liabilities at any time shall be computed as the amount that, in the light of all of the facts and circumstances existing at such time, represents the amount that can reasonably be expected to become an actual or matured liability. In addition, unmatured Obligations of any Person under any executory contract (including, without limitation, leases) shall, subject to the limitations set forth in the immediately preceding sentence, be considered a "net liability" to the extent that, at any date of determination, the Fair Market Value of the consideration to be received by such Person pursuant to such executory contract is less than the Fair Market Value of the consideration to be given by such Person pursuant to such executory contract and shall be considered a "net asset" to the extent that, at any date of determination, the Fair Market Value of the consideration to be received by such Person pursuant to such executory contract is greater than the Fair Market Value of the consideration to be given by such Person pursuant to such executory contract. "SPECIAL ASSETS" means rights of every kind and nature in and to literary, trademark, service mark, literary property, personal property, photograph, name, likeness, character, motion picture, musical, dramatic or other literary material of any kind or nature upon which, in whole or in part, any item of Product is or may be based or from which it is or may be adapted or inspired, or which may be or have been used or included in such item of Product, including, without limitation, the screenplays therefor and all other scripts, scenarios, screenplays, bibles, scores, treatments, novels, outlines, books, play titles, characters, concepts, manuscripts, music, musical compositions, and sound and related rights and copyrights of every kind or nature in such literary or music property, in whatever state of completion, and all drafts, versions and variations 43 thereof, and merchandising and licensing rights therefor, including, without limitation, in trademarks. "SPECIAL PURPOSE VEHICLE" means any Person that is not, and is not required under the terms of the Loan Documents to be, a Loan Party (a) which has been organized for the sole purpose of effecting one or more Permitted Film Financings and acquiring, producing, exhibiting, syndicating, exploiting or distributing television films and other programming with the proceeds thereof, (b) which has no property, assets or liabilities other than those directly acquired or incurred in connection with such Permitted Film Financings, (c) all of the liabilities and other Obligations of which are nonrecourse for the payment or performance thereof to any other Person (including, without limitation, any of the Loan Parties) and (d) the legal structure and capitalization of which has been approved by the Administrative Agent, such approval not to be unreasonably withheld or delayed. "STOCKHOLDERS AGREEMENT" means the Amended and Restated Strategic Stockholders Agreement dated as of August 1, 1997 by and among Haim Saban, each of the Persons listed on Schedule A thereto, FBC, FBC Sub and Allen & Company Incorporated, as such agreement may be further amended, supplemented or otherwise modified from time to time in accordance with the terms thereof, but to the extent permitted under the terms of the Loan Documents. "SUBSIDIARIES GUARANTEE" has the meaning specified in Section 3.01(i)(xi). "SUBSIDIARY" means, with respect to any Person, any corporation, partnership, joint venture, limited liability company, unlimited liability company, trust or estate of which (or in which) more than 50% of: (a) the issued and outstanding shares of capital stock having ordinary voting power to elect a majority of the board of directors of such corporation (irrespective of whether at the time shares of capital stock of any other class or classes of such corporation shall or might have voting power upon the occurrence of any contingency); (b) the interest in the capital or profits of such partnership, joint venture, limited liability company or unlimited liability company; or (c) the beneficial interest in such trust or estate, is at the time, directly or indirectly, owned or controlled by such Person, by such Person and one or more of its other Subsidiaries or by one or more of such Person's other Subsidiaries. "SUBSTITUTE RATE" has the meaning specified in Section 2.09(e). "SURVIVING INDEBTEDNESS" means all of the Indebtedness of the Loan Parties and their Subsidiaries in existence on the Effective Date and not prepaid, redeemed, defeased or otherwise satisfied in full on such date. "TAXES" has the meaning specified in Section 2.11(a). 44 "TERM ADVANCE" has the meaning specified in Section 2.01(b). "TERM BORROWING" means a borrowing consisting of simultaneous Term Advances of the same Type made by (or, in the case of the Existing Term Advances, purchased and assumed by) the Term Lenders. "TERM COMMITMENT" means, with respect to any of the Term Lenders at any time, the amount set forth opposite such Term Lender's name on Part B of Schedule I hereto under the caption "Term Commitment" or, if such Term Lender has entered into one or more Assignments and Acceptances, the amount set forth for such Term Lender in the Register maintained by the Administrative Agent pursuant to Section 9.08(d) as such Term Lender's "Term Commitment", as such amount may be reduced at or prior to such time pursuant to Section 2.04. "TERM FACILITY" means, at any time, the aggregate Term Commitments of all of the Term Lenders at such time. "TERM LENDER" means, at any time, any of the Lenders that has a Term Commitment at such time. "TERM NOTE" means a promissory note of IFE payable to the order of any of the Term Lenders, in substantially the form of Exhibit A-2 hereto, evidencing the aggregate indebtedness of IFE to such Term Lender resulting from the Term Advances made by (or, in the case of the Existing Term Advances, purchased and assumed by) such Term Lender. "TERMINATION DATE" means the earlier of (a) September 29, 2004 and (b) the date of termination in whole of the Revolving Credit Commitments and the Term Commitments pursuant to Section 2.04 or 7.01. "TNCL" means The News Corporation Limited, a corporation organized and existing under the laws of South Australia, Australia. "TNCL GROUP" means TNCL and its Subsidiaries; provided that, for purposes of this definition, the Subsidiaries of TNCL shall also include Twentieth Holdings Corporation and its Subsidiaries and any other Person in which more than a majority in interest of the combined voting power of all of the Voting Interests in such Person (on a fully diluted basis) are owned directly or indirectly by the Murdoch Family. "TNCL GROUP SUBORDINATED NOTES" means, collectively, the FBC Subordinated Notes, the NAHI Subordinated Notes and the Permitted Affiliate Subordinated Notes. "TOTAL LEVERAGE RATIO" means, with respect to Fox Kids and its Subsidiaries at any date of determination, the ratio of (a) Adjusted Funded Indebtedness of Fox Kids and its Subsidiaries at such date to (b) Consolidated EBITDA of Fox Kids and its Subsidiaries for the most recently completed Measurement Period prior to such date. "TRANSACTION" means, collectively, (a) the organization of Holdings and the issuance of all of the Equity Interests therein to Fox Kids, (b) the issuance and sale of the Senior Notes, (c) 45 the consummation of the Refinancing, (d) the entering into by Fox Kids and certain of its Subsidiaries of the Loan Documents and the Related Documents to which they are or are intended to be a party, (e) the repayment of certain outstanding principal of, and accrued and unpaid interests on, the Existing NAHI Subordinated Notes and (f) the payment of the fees and expenses incurred in connection with the consummation of the foregoing. "T.V.10" means T.V.10 B.V., a Netherlands limited company and an indirect Subsidiary of Saban. "TYPE" refers to the distinction between Advances bearing interest at the Base Rate and Advances bearing interest at the Eurodollar Rate. "U.K./FKE PLEDGE AGREEMENT" has the meaning specified in Section 3.01(i)(ix)(B). "U.K./SABAN U.K. PLEDGE AGREEMENT" has the meaning specified in Section 3.01(i)(ix)(A). "UNRESTRICTED SUBSIDIARY" means, at any time, any of the Subsidiaries of Holdings that does not constitute a Borrower or a Restricted Subsidiary at such time; provided, however, that none of the Special Purpose Vehicles shall constitute an Unrestricted Subsidiary. "UNUSED REVOLVING CREDIT COMMITMENT" means, with respect to any of the Revolving Credit Lenders at any time, (a) the Revolving Credit Commitment of such Revolving Credit Lenders at such time less (b) the aggregate principal amount of all Revolving Credit Advances made by (or, in the case of the Existing Revolving Credit Advances, deemed to have been made by) such Revolving Credit Lender and outstanding at such time. "VOTING EQUITY INTERESTS" has the meaning specified in Section 5.02(j)(iv). "VOTING INTERESTS" means shares of capital stock issued by a corporation, or equivalent Equity Interests in any other Person, the holders of which are ordinarily, in the absence of contingencies, entitled to vote for the election of directors (or persons performing similar functions) of such Person, even if the right so to vote has been suspended by the happening of such a contingency. "WITHDRAWAL LIABILITY" has the meaning specified in Part I of Subtitle E of Title IV of ERISA. SECTION 1.02. Computation of Time Periods. In this Agreement in the --------------------------- computation of periods of time from a specified date to a later specified date, the word "from" means "from and including", the word "through" means "through and including" and the words "to" and "until" each mean "to but excluding". SECTION 1.03. Accounting Terms. All accounting terms not ---------------- specifically defined herein shall be construed in accordance with GAAP; provided, however, that, if any changes in accounting principles from those used in the preparation of the Consolidated financial statements of Fox Kids and its Subsidiaries or Holdings and its Subsidiaries for the Fiscal Quarter ending December 31, 1997 (as are 46 delivered to the Lenders pursuant to Section 7(i)(i) of the Fox Kids Guarantee or Section 5.03(b) hereof, respectively) occur by reason of the promulgation of rules, regulations, pronouncements, opinions or other requirements of the Financial Accounting Standards Board or the American Institute of Certified Public Accountants (or successors thereto or agencies with similar functions) and such changes would affect (or would result in a change in the method of calculation of) any of the covenants set forth in Section 8(b)(ii)(D) of the Fox Kids Guarantee or Section 5.02 or 5.04 hereof, or any of the defined terms related thereto contained in Section 1.01 hereof, then Fox Kids or Holdings, as applicable, shall enter into negotiations in good faith with the Administrative Agent and the Lenders, if and to the extent necessary, to amend in accordance with Section 9.01 all such covenants or terms as would be affected by such changes in GAAP in such a manner as would maintain the economic terms of such covenants as in effect under the Fox Kids Guarantee or this Agreement, as the case may be, prior to giving effect to the occurrence of any such changes; and provided further, however, that, until the amendment of the covenants and the defined terms referred to in the immediately preceding proviso becomes effective, all covenants and defined terms shall be performed, observed and determined, and any determination of compliance with any such covenant shall be made, as though no such changes in accounting principles had been made. SECTION 1.04. Currency Equivalents Generally. Any amount specified in ------------------------------ this Agreement (other than in Articles II, VIII and IX) or any of the other Loan Documents to be in U.S. dollars shall also include the equivalent of such amount in any currency other than U.S. dollars, such equivalent amount to be determined at the rate of exchange quoted by Citibank in New York, New York, at the close of business on the Business Day immediately preceding any date of determination thereof, to prime banks in New York, New York for the spot purchase in the New York foreign exchange market of such amount in U.S. dollars with such other currency. ARTICLE II AMOUNTS AND TERMS OF THE ADVANCES SECTION 2.01. The Advances. (a) The Revolving Credit Advances. ------------ ----------------------------- Each of the Existing Revolving Credit Lenders will, as of the Effective Date, sell and assign to the other Revolving Credit Lenders an interest in and to all of its respective rights and obligations under and in respect of the Existing Revolving Credit Advances set forth opposite such Existing Revolving Credit Lender's name on Part A of Schedule I hereto under the caption "Existing Revolving Credit Advances", and each of the other Revolving Credit Lenders will purchase and assume that portion of such Existing Revolving Credit Advances set forth opposite such other Revolving Credit Lender's name on Part A of Schedule I hereto under the caption "Existing Revolving Credit Advances". Each of the Revolving Credit Lenders severally agrees, on the terms and conditions hereinafter set forth, to make advances (each, a "REVOLVING CREDIT ADVANCE") in U.S. dollars to the Borrowers from time to time on any Business Day during the period from the date of this Agreement until the Termination Date in an amount for each such Revolving Credit Advance not to exceed the Unused Revolving Credit Commitment of such Revolving Credit Lender at such time. The Existing Revolving Credit Advances referred to opposite the name of such Revolving Credit Lender on Part A of Schedule I hereto and outstanding on the Effective Date shall be deemed to be Revolving Credit Advances for all purposes of this Agreement. Each of the Revolving Credit Borrowings shall be in an aggregate amount of $10,000,000 or an integral multiple of $1,000,000 in excess thereof (or, if less, the amount of the aggregate Unused Revolving Credit Commitments). Each 47 of the Revolving Credit Borrowings shall consist of Revolving Credit Advances made simultaneously by the Revolving Credit Lenders in accordance with their respective Pro Rata Shares of the Revolving Credit Facility. Within the limits of the Unused Revolving Credit Commitment of each of the Revolving Credit Lenders in effect from time to time, each of the Borrowers may borrow under this Section 2.01(a), prepay pursuant to Section 2.05(a) and reborrow under this Section 2.01(a). (b) The Term Advances. Each of the Existing Term Lenders will, as of ----------------- the Effective Date, sell and assign to the other Term Lenders an interest in and to all of its respective rights and obligations under and in respect of the Existing Term Advances set forth opposite such Existing Term Lender's name on Part A of Schedule I hereto under the caption "Existing Term Advances", and each of the other Term Lenders will purchase and assume that portion of such Existing Term Advances set forth opposite such other Term Lender's name on Part A of Schedule I hereto under the caption "Existing Term Advances". Each of the Term Lenders severally agrees, on the terms and conditions hereinafter set forth, to make a single advance (a "TERM ADVANCE") in U.S. dollars to IFE on the Effective Date in an amount not to exceed the excess, if any, of (i) the Term Commitment of such Term Lender on the Effective Date over (ii) the aggregate principal amount of the Existing Term Advances retained, or purchased and assumed, by such Term Lender on the Effective Date. The Existing Term Advances set forth opposite such Term Lender's name on Part A of Schedule I hereto and outstanding on the Effective Date shall be deemed to be Term Advances for all purposes of this Agreement. The Term Borrowing made on the Effective Date shall consist of Term Advances made simultaneously by the Term Lenders in accordance with their respective Pro Rata Shares of the Term Facility. Amounts borrowed under this Section 2.01(b) and repaid or prepaid may not be reborrowed. SECTION 2.02. Making the Advances. (a) Notices of Borrowing. Each ------------------- -------------------- of the Borrowings shall be made on notice, given not later than 11:00 A.M. (New York City time) on the third Business Day prior to the date of the proposed Borrowing in the case of a Borrowing comprised of Eurodollar Rate Advances or on the first Business Day prior to the date of the proposed Borrowing in the case of a Borrowing comprised of Base Rate Advances by an Appropriate Borrower to the Administrative Agent, which shall give prompt notice thereof to each of the Appropriate Lenders by telex or telecopier. Each notice of a Borrowing (a "NOTICE OF BORROWING") shall be delivered by telephone, confirmed immediately in writing, or by telex or telecopier, in substantially the form of Exhibit B-1 hereto, shall be duly executed by a Responsible Officer of such Appropriate Borrower, and shall specify therein: (i) the requested date of such Borrowing (which shall be a Business Day); (ii) the Facility under which such Borrowing is requested to be made; (iii) the Type of Advances requested to comprise such Borrowing; (iv) the requested aggregate amount of such Borrowing; and (v) in the case of a Borrowing comprised of Eurodollar Rate Advances, the requested duration of the initial Interest Period for each such Advance (and, if the requested duration of such initial Interest Period is specified to be nine months, the desired alternative Interest Period for each such Eurodollar Rate Advance). 48 Each of the Appropriate Lenders shall, before 1:00 P.M. (New York City time) on the date of each Borrowing, make available for the account of its Applicable Lending Office to the Administrative Agent at the Administrative Agent's Account, in same day funds, such Lender's Pro Rata Share of such Borrowing. After the Administrative Agent's receipt of such funds and upon fulfillment of the applicable conditions set forth in Article III, the Administrative Agent will make such funds available to the Borrower that requested such Borrowing by crediting the Appropriate Borrower's Account. (b) Limitations on Borrowings. Anything in Section 2.02(a) to the ------------------------- contrary notwithstanding, none of the Borrowers may select Eurodollar Rate Advances for any Borrowing if the aggregate amount of such Borrowing is less than $5,000,000 or if the obligation of the Appropriate Lenders to make Eurodollar Rate Advances shall then be suspended pursuant to Section 2.08 or 2.09. In addition, the Revolving Credit Advances may not be outstanding as part of more than eight separate Revolving Credit Borrowings and the Term Advances may not be outstanding as part of more than eight separate Term Borrowings. (c) Binding Effect of Notices of Borrowing. Each Notice of Borrowing -------------------------------------- shall be irrevocable and binding on the Borrower that requested such Borrowing. In the case of any Borrowing that the related Notice of Borrowing specifies is to be comprised of Eurodollar Rate Advances, the Borrower that requested such Borrowing shall indemnify each of the Appropriate Lenders against any loss, cost or expense incurred by such Lender as a result of any failure to fulfill on or before the date specified in the Notice of Borrowing for such Borrowing the applicable conditions set forth in Article III, including, without limitation, any loss (including loss of anticipated profits other than any amount attributable solely to the Applicable Margin), cost or expense incurred by reason of the liquidation or reemployment of deposits or other funds acquired by such Lender to fund the Advance to be made by such Lender as part of such Borrowing when such Advance, as a result of such failure, is not made on such date. (d) Assumption of Administrative Agent. Unless the Administrative ---------------------------------- Agent shall have received notice from an Appropriate Lender prior to the date of any Borrowing under a Facility under which such Lender has a Commitment that such Lender will not make available to the Administrative Agent such Lender's Pro Rata Share of such Borrowing, the Administrative Agent may assume that such Lender has made such Pro Rata Share available to the Administrative Agent on the date of such Borrowing in accordance with subsection (a) of this Section 2.02 and the Administrative Agent may, in reliance upon such assumption, make available to the Borrower that requested such Borrowing on such date a corresponding amount. If and to the extent that such Lender shall not have so made such Pro Rata Share available to the Administrative Agent, such Lender and the Borrower that requested such Borrowing severally agree to repay or to pay to the Administrative Agent forthwith on demand such corresponding amount, together with interest thereon, for each day from the date such amount is made available to such Borrower until the date such amount is repaid or paid to the Administrative Agent, at (i) in the case of such Borrower, the interest rate applicable at such time under Section 2.06 to Advances comprising part of such Borrowing and (ii) in the case of such Lender, the Federal Funds Rate. If such Lender shall pay to the Administrative Agent such corresponding amount, such amount so paid shall constitute such Lender's Advance as part of such Borrowing for all purposes under this Agreement. (e) Failure to Make Advances. The failure of any Lender to make the ------------------------ Advance to be made by it as part of any Borrowing shall not relieve any other Lender of its obligation, if any, hereunder to make its Advance on the date of such Borrowing, but no Lender shall be responsible for [*] CONFIDENTIAL TREATMENT REQUESTED 49 the failure of any other Lender to make the Advance to be made by such other Lender on the date of any Borrowing. SECTION 2.03. Repayment of Advances. (a) Revolving Credit Advances. --------------------- ------------------------- Each of the Borrowers shall repay to the Administrative Agent for the ratable account of the Revolving Credit Lenders on the Termination Date the aggregate principal amount of all of the Revolving Credit Advances made to such Borrower and outstanding on such date. (b) Term Advances. IFE shall repay to the Administrative Agent for ------------- the ratable account of the Term Lenders the aggregate principal amount of the Term Advances outstanding on the following dates in an amount equal to the percentage of the aggregate principal amount of all of the Term Advances outstanding on the Effective Date (after giving effect to the Term Borrowing, if any, made on the Effective Date) set forth opposite such dates (in each case which amounts shall be reduced as a result of the application of prepayments in accordance with the order of priority set forth in Section 2.05):
DATE PERCENTAGE - ---- ---------- [*] [*] [*] [*] [*]
provided, however, that, notwithstanding the foregoing provisions of this Section 2.03(b), the final principal repayment installment of the Term Advances shall be repaid in full on the Termination Date and in any event shall be in an amount equal to the aggregate principal amount of all Term Advances outstanding on such date. [*] CONFIDENTIAL TREATMENT REQUESTED 50 SECTION 2.04. Termination or Reduction of the Commitments. (a) ------------------------------------------- Optional. The Appropriate Borrowers, upon at least three Business Days' notice - -------- to the Administrative Agent, may terminate in whole or reduce in part the unused portion of the Term Commitments or the Unused Revolving Credit Commitments; provided, however, that each partial reduction of either of the Facilities shall be in an aggregate amount of $5,000,000 or an integral multiple of $1,000,000 in excess thereof or, if less, the aggregate amount of such Facility. Each reduction of the unused portions of the Term Commitments pursuant to this Section 2.04(a) shall be applied first, to the next two succeeding principal repayment installments of the Term Facility in direct order of maturity until such principal repayment installments are repaid in full and second, to the remaining principal repayment installments of the Term Facility on a pro rata basis. Each reduction of the Unused Revolving Credit Commitments pursuant to this Section 2.04(a) shall be applied first, to the next two succeeding scheduled commitment reduction installments of the Revolving Credit Facility in direct order of maturity until such scheduled commitment reduction installments are reduced in full and second, to the remaining scheduled commitment reduction installments of the Revolving Credit Facility on a pro rata basis. (b) Mandatory [*] --------- [*]
[*] [*] [*] [*]
[*] CONFIDENTIAL TREATMENT REQUESTED 51 [*] (iii) The Facilities shall be automatically and permanently reduced, on the tenth day following each date on which Fox Kids deliver to the Lenders the audited Consolidated financial statements of Fox Kids and its Subsidiaries referred to in Section 7(i)(ii) of the Fox Kids Guarantee (but in any event within 130 days after the end of each Fiscal Year), commencing with such audited Consolidated financial statements for the Fiscal Year ending June 30, 1998, by an amount equal to [*] Each reduction of the Facilities pursuant to this clause (iii) shall be applied in the manner set forth in clause (i) of Section 2.04(c). [*] [*] [*] [*] [*] [*] (v) Notwithstanding any of the other provisions of this Section 2.04, [*] CONFIDENTIAL TREATMENT REQUESTED 52 [*] [*] [*] (c) Application of Commitment Reductions. (i) Each reduction of the ------------------------------------ Facilities pursuant to clause (iii), (iv) or (v) of Section 2.04(b) shall be applied first, to the next two succeeding principal repayment installments of the Term Facility in direct order of maturity until such principal repayment installments are repaid in full, second, to the remaining principal repayment installments of the Term Facility on a pro rata basis, third, to the next two succeeding scheduled commitment reduction installments of the Revolving Credit Facility in direct order of maturity until such scheduled commitment reduction installments are reduced in whole and fourth, to the remaining scheduled commitment reduction installments of the Revolving Credit Facility on a pro rata basis. (ii) Upon each reduction of either of the Facilities pursuant to this Section 2.04, the Commitment of each of the Appropriate Lenders under such Facility shall be reduced by such Lender's Pro Rata Share of the amount by which such Facility is reduced. SECTION 2.05. Prepayments. (a) Optional. Each of the Appropriate ----------- -------- Borrowers may, upon at least three Business Days' notice to the Administrative Agent stating the Facility under which Advances are proposed to be prepaid and the proposed date and aggregate principal amount of the prepayment, and if such notice is given such Borrower shall, prepay the aggregate principal amount of Advances comprising part of the same Borrowing and outstanding on such date, in whole or ratably in part; provided, however, that (i) each partial prepayment shall be in an aggregate principal amount of $5,000,000 or an integral multiple of $1,000,000 in excess thereof and (ii) in the case of any such prepayment of a Eurodollar Rate Advance on a date other than the last day of an Interest Period therefor, the Borrower making such prepayment shall also pay any amounts owing in respect of such Eurodollar 53 Rate Advance pursuant to Section 9.05(b). Each such prepayment of any Term Advances shall be applied first, to the next two succeeding principal repayment installments of the Term Facility in direct order of maturity until such principal repayment installments are repaid in full and second, to the remaining principal repayment installments of the Term Facility on a pro rata basis. (b) Mandatory. (i) The Appropriate Borrowers shall, on each Business --------- Day, prepay: (A) an aggregate principal amount of the Term Advances comprising part of the same Term Borrowings equal to the amount by which (1) the aggregate principal amount of all Term Advances outstanding on such Business Day exceeds (2) the Term Facility on such Business Day (after giving effect to any permanent reduction thereof pursuant to Section 2.04 on such Business Day), each such prepayment to be applied first, to the next two succeeding principal repayment installments of the Term Facility in direct order of maturity until such principal repayment installments are repaid in full and second, to the remaining principal repayment installments of the Term Facility on a pro rata basis; and (B) an aggregate principal amount of the Revolving Credit Advances comprising part of the same Revolving Credit Borrowings equal to the amount by which (1) the aggregate principal amount of all Revolving Credit Advances outstanding on such Business Day exceeds (2) the Revolving Credit Facility on such Business Day (after giving effect to any permanent reduction thereof pursuant to Section 2.04 on such Business Day), each such prepayment to be applied first, to the next two succeeding scheduled commitment reduction installments of the Revolving Credit Facility in direct order of maturity until such scheduled commitment reduction installments are reduced in full and second, to the remaining scheduled commitment reduction installments of the Revolving Credit Facility on a pro rata basis. Any Excess Cash Flow or Net Cash Proceeds remaining after the application thereof to the prepayment of Advances outstanding on the date of receipt thereof pursuant to clause (iii), (iv) or (v) of Section 2.04(b) and this Section 2.05(b) may be retained by the applicable Borrower for use in its businesses and operations in the ordinary course or as otherwise permitted under the terms of this Agreement. (ii) Notwithstanding any of the other provisions of this Section 2.05(b), so long as no Default under Section 7.01(a) or 7.01(f) or Event of Default shall have occurred and be continuing, if any prepayment of Eurodollar Rate Advances is required to be made under this Section 2.05(b) other than on the last day of the Interest Period therefor, the Borrower to which such Eurodollar Rate Advances were made may, in its sole discretion, deposit the amount of any such prepayment otherwise required to be made hereunder into the Cash Collateral Account of such Borrower until the last day of such Interest Period, at which time the Administrative Agent shall be authorized (without any further action by or notice to or from such Borrower) to apply such amount to the prepayment of such Advances in accordance with this Section 2.05(b). (c) Prepayments to Include Accrued Interest. All prepayments under --------------------------------------- this Section 2.05 shall be made together with (i) accrued and unpaid interest to the date of such prepayment on the principal amount so prepaid and (ii) in the case of any such prepayment of a Eurodollar Rate Advance on a date other than the last day of an Interest Period therefor, any amounts owing in respect of such Eurodollar Rate Advance pursuant to Section 9.05(b). 54 SECTION 2.06. Interest on Advances. (a) Scheduled Interest. Each -------------------- ------------------ of the Borrowers shall pay interest on the unpaid principal amount of each Advance made to such Borrower from the date of such Advance until such principal amount shall be paid in full, at the following rates per annum: (i) Base Rate Advances. During such periods as such Advance is a Base ------------------ Rate Advance, a rate per annum equal at all times to the sum of (A) the Base Rate in effect from time to time and (B) the Applicable Margin for such Advance in effect from time to time, payable in arrears quarterly on the second Business Day prior to the last day of each December, March, June and September during such periods and on the date such Base Rate Advance shall be Converted or paid in full. (ii) Eurodollar Rate Advances. During such periods as such Advance is ------------------------ a Eurodollar Rate Advance, a rate per annum equal at all times during each Interest Period for such Advance to the sum of (A) the Eurodollar Rate for such Advance for such Interest Period and (B) the Applicable Margin for such Advance in effect on the first day of such Interest Period, payable in arrears on the last day of such Interest Period and, if such Interest Period has a duration of more than three months, on each day that occurs during such Interest Period every three months from the first day of such Interest Period and on the date such Eurodollar Rate Advance shall be Converted or paid in full. (b) Default Interest. Upon the occurrence and during the continuance ---------------- of a Default under Section 7.01(a) or 7.01(f) or an Event of Default, the Borrowers shall pay interest on (i) the unpaid principal amount of each Advance owing to each of the Lenders, payable in arrears on the dates referred to in clause (i) or (ii) of Section 2.06(a), as applicable, and on demand, at a rate per annum equal at all times to 2% per annum above the rate per annum required to be paid on such Advance pursuant to clause (i) or (ii) of Section 2.06(a), as applicable, and (ii) to the fullest extent permitted by applicable law, the amount of any interest, fee or other amount payable under this Agreement or any of the other Loan Documents that is not paid when due, from the date such amount shall be due until such amount shall be paid in full, payable in arrears on the date such amount shall be paid in full and on demand, at a rate per annum equal at all times to 2% per annum above the rate per annum required to be paid, in the case of interest, on the Type of Advance on which such interest has accrued pursuant to clause (i) or (ii) of Section 2.06(a), as applicable, and, in all other cases, on Base Rate Advances pursuant to clause (i) of Section 2.06(a). (c) Information from Reference Banks. Each of the Reference Banks -------------------------------- hereby agrees to furnish to the Administrative Agent timely information for the purpose of determining each Eurodollar Rate. If any one of the Reference Banks shall not furnish such timely information to the Administrative Agent for the purpose of determining any such interest rate, the Administrative Agent shall determine such interest rate on the basis of timely information furnished by the remaining Reference Banks. If fewer than two Reference Banks furnish timely information to the Administrative Agent for the purpose of determining the Eurodollar Rate for any Eurodollar Rate Advances: (i) the Administrative Agent shall forthwith notify the Borrower that requested the Borrowing to have been comprised of such Eurodollar Rate Advances and the Appropriate Lenders that the interest rate cannot be determined for such Eurodollar Rate Advances; [*] CONFIDENTIAL TREATMENT REQUESTED 55 (ii) each such Eurodollar Rate Advance will automatically, on the last day of the then existing Interest Period therefor, Convert into a Base Rate Advance (or, if such Advance is then a Base Rate Advance, will continue as a Base Rate Advance); and (iii) the obligation of the Lenders to make Eurodollar Rate Advances, or to Convert Advances into Eurodollar Rate Advances, shall be suspended until the Administrative Agent shall notify the Borrowers and the Lenders that the circumstances causing such suspension no longer exist. (d) Notice of Interest Rate. Promptly after receipt of a Notice of ----------------------- Borrowing pursuant to Section 2.02(a), the Administrative Agent shall give notice to the Borrower that delivered such Notice of Borrowing and each of the Appropriate Lenders of the applicable interest rate determined by the Administrative Agent for purposes of clause (i) or (ii) of Section 2.06(a), as applicable. If any Notice of Borrowing delivered pursuant to Section 2.02(a) specifies that the requested duration of the initial Interest Period for the Eurodollar Rate Advances to comprise the Borrowing requested therein is nine months, then the Administrative Agent shall send written confirmation, given not later than 11:00 A.M. (New York City time) on the second Business Day prior to the date of such Borrowing, to each of the Appropriate Lenders, by telex or telecopier, confirming the actual duration of the initial Interest Period for all such Eurodollar Rate Advances determined in accordance with clause (c) of the definition of "Interest Period" set forth in Section 1.01. SECTION 2.07. Fees. [*] ---- (b) Administrative Agent's and Co-Arranger's Fees. The Borrowers --------------------------------------------- shall pay to the Administrative Agent, for its own account and, if applicable, the account of the Co-Arrangers, such fees as have been agreed in the fee letter dated June 6, 1997 between Fox Kids, on behalf of itself and the other Borrowers, and Citicorp Securities, on behalf of itself and the Administrative Agent, and as may hereafter from time to time be agreed among one or more of the Borrowers, on the one hand, and the Administrative Agent, on the other hand. SECTION 2.08. Conversion of Advances. (a) Optional. Each of the ---------------------- -------- Borrowers may on any Business Day, upon notice given to the Administrative Agent not later than 11:00 A.M. (New York City time) on the third Business Day prior to the date of the proposed Conversion in the case of a Conversion of Base Rate Advances into Eurodollar Rate Advances or of Eurodollar Rate Advances of one Interest Period into Eurodollar Rate Advances of another Interest Period, or 11:00 A.M. (New York City time) on the Business Day immediately preceding the date of the proposed Conversion in the case of a Conversion of Eurodollar Rate Advances into Base Rate Advances, and subject to the provisions of 56 Sections 2.06(c) and 2.09, Convert all or any portion of the Advances of one Type comprising the same Borrowing into Advances of the other Type; provided, however, that: (i) any Conversion of Eurodollar Rate Advances into Base Rate Advances shall be made only on the last day of an Interest Period for such Eurodollar Rate Advances; (ii) any Conversion of Base Rate Advances into Eurodollar Rate Advances shall be made only if no Default under Section 7.01(a) or 7.01(f) or Event of Default shall have occurred and be continuing on the date of such Conversion and shall be in an amount not less than the minimum amount specified in Section 2.02(b); and (iii) each Conversion of Advances comprising part of the same Borrowing under any Facility shall be made among the Appropriate Lenders in accordance with their respective Pro Rata Shares of such Borrowing. Each notice of a Conversion (a "NOTICE OF CONVERSION") shall be delivered by telephone, confirmed immediately in writing, or by telex or telecopier, in substantially the form of Exhibit B-2 hereto, shall be duly executed by a Responsible Officer of such Appropriate Borrower, and shall, within the restrictions set forth in the immediately preceding sentence, specify therein: (A) the requested date of such Conversion (which shall be a Business Day); (B) the Advances requested to be Converted; and (C) if such Conversion is into Eurodollar Rate Advances, the requested duration of the Interest Period for such Eurodollar Rate Advances (and, if the requested duration of such Interest Period is specified to be nine months, the desired alternative Interest Period therefor). The Administrative Agent shall give each of the Appropriate Lenders prompt notice of each Notice of Conversion received by it, by telex or telecopier. Each Notice of Conversion shall be irrevocable and binding on the Borrower that requested such Conversion. (b) Mandatory. (i) On the date on which the aggregate unpaid --------- principal amount of Eurodollar Rate Advances comprising any Borrowing shall be reduced, by payment, prepayment or otherwise, to less than $5,000,000, such Eurodollar Rate Advances shall automatically Convert into Base Rate Advances. (ii) If any of the Borrowers shall fail to select the duration of any Interest Period for any Eurodollar Rate Advances in accordance with the provisions contained in the definition of "Interest Period" set forth in Section 1.01, the Administrative Agent will forthwith so notify such Borrower and the Appropriate Lenders, whereupon each such Eurodollar Rate Advance will automatically, on the last day of the then existing Interest Period therefor, Convert into a Eurodollar Rate Advance with an Interest Period of one month. (iii) Upon the occurrence and during the continuance of any Default under Section 7.01(a) or 7.01(f) or any Event of Default, (A) each Eurodollar Rate Advance will automatically, on the last day of the then existing Interest Period therefor, Convert into a Base Rate Advance and (B) the 57 obligation of the Lenders to make, or to Convert Advances into, Eurodollar Rate Advances shall be suspended. SECTION 2.09. Increased Costs, Etc. (a) If, due to either (i) the -------------------- introduction of or any change (other than any change by way of the imposition of or increase in reserve requirements included in the Eurodollar Rate Reserve Percentage) in or in the interpretation or application of any Requirement of Law after the date of this Agreement or (ii) the compliance with (A) any official directive, guideline or request from any central bank or other Governmental Authority or (B) any change therein or in the interpretation, application, implementation, administration or enforcement thereof, that, in the case of subclause (ii)(A) or (ii)(B) of this Section 2.09(a), becomes effective or is issued or made after the date of this Agreement (whether or not having the force of law), there shall be any increase in the cost to any of the Lenders of agreeing to make or making, agreeing to participate in or participating in, agreeing to renew or renewing or funding or maintaining any Advances of either Type, or any reduction in the amount owing to any of the Lenders or their respective Applicable Lending Offices under this Agreement in respect of any Advances of either Type (excluding, for purposes of this Section 2.09, any such increased costs resulting from (1) Taxes or Other Taxes (as to which Section 2.11 shall govern) and (2) changes in the basis of taxation of overall net income or overall gross income by the United States of America or the jurisdiction under the laws of which such Lender is organized or has either of its Applicable Lending Offices or any political subdivision thereof), then the Borrowers hereby jointly and severally agree to pay, from time to time upon demand by such Lender (with a copy of such demand to the Administrative Agent), to the Administrative Agent for the account of such Lender additional amounts sufficient to compensate or to reimburse such Lender for all such increased costs or reduced amounts. A certificate of the Lender requesting such additional compensation pursuant to this Section 2.09(a), submitted to the Borrowers by such Lender and specifying therein the amount of such additional compensation (including the basis of calculation thereof), shall be conclusive and binding for all purposes, absent manifest error. (b) If any of the Lenders determines that compliance with any Requirement of Law, or (i) any official directive, guideline or request from any central bank or other Governmental Authority (whether or not having the force of law) or (ii) any change therein or in the interpretation, application, implementation, administration or enforcement thereof, that, in the case of clause (i) or (ii) of this Section 2.09(b), is enacted or becomes effective, or is implemented or is first required or expected to be complied with, after the date of this Agreement affects the amount of capital required or expected to be maintained by such Lender (or either of the Applicable Lending Offices of such Lender) or by any Person controlling such Lender and that the amount of such capital is increased by or is based upon the existence of the commitment of such Lender to lend hereunder and other commitments of this type, then the Borrowers hereby jointly and severally agree to pay, upon demand by such Lender (with a copy of such demand to the Administrative Agent), to the Administrative Agent for the account of such Lender, from time to time as specified by such Lender, additional amounts sufficient to compensate such Lender or such Person in light of such circumstances, to the extent that such Lender or such Person reasonably determines such increase in capital to be allocable to the existence of the commitment of such Lender to lend hereunder. A certificate of the Lender requesting such additional compensation pursuant to this Section 2.09(b), submitted to the Borrowers by such Lender and specifying therein the amount of such additional compensation (including the basis of calculation thereof), shall be conclusive and binding for all purposes, absent manifest error. 58 (c) If, with respect to any Eurodollar Rate Advances under either of the Facilities, Lenders owed or holding not less than a majority in interest of the aggregate principal amount of all Advances outstanding under such Facility at any time notify the Administrative Agent that the Eurodollar Rate for any Interest Period for such Advances will not adequately reflect the cost to such Lenders of making, participating in or renewing, or funding or maintaining, their Eurodollar Rate Advances for such Interest Period, the Administrative Agent shall forthwith so notify the Appropriate Borrowers and the Appropriate Lenders, whereupon (i) each such Eurodollar Rate Advance under such Facility will automatically, on the last day of the then existing Interest Period therefor, Convert into a Base Rate Advance and (ii) the obligation of the Appropriate Lenders to make, or to Convert Advances into, Eurodollar Rate Advances shall be suspended until the Administrative Agent shall notify the Appropriate Borrowers (promptly following notice from the Appropriate Lenders) that such Appropriate Lenders have determined that the circumstances causing such suspension no longer exist. (d) Notwithstanding any of the other provisions of this Agreement, if any Lender shall notify the Administrative Agent that the introduction of or any change in or in the interpretation or application of any Requirement of Law makes it unlawful, or any central bank or other Governmental Authority asserts that it is unlawful, for such Lender or its Eurodollar Lending Office to perform its obligations hereunder to make, to participate in or to renew, or to fund or maintain, Eurodollar Rate Advances hereunder, then (i) each Eurodollar Rate Advance of such Lender will automatically, on the last day of the then existing Interest Period therefor, if permitted by applicable law, or otherwise upon demand, Convert into a Base Rate Advance of such Lender and (ii) the obligation of such Lender to make, or to Convert Advances into, Eurodollar Rate Advances shall be suspended until the Administrative Agent shall notify the Borrowers (promptly following notice from such Lender) that the circumstances causing such suspension no longer exist. If the obligation of a Lender to make Eurodollar Rate Advances is suspended pursuant to this Section 2.09(d), then, subject to subsection (e) of this Section 2.09, until the circumstances that gave rise to such suspension no longer apply to such Lender, all Eurodollar Rate Advances that would otherwise be made by such Lender as part of any Borrowing shall be made instead as Base Rate Advances and all payments of principal of and interest on such Base Rate Advances shall be made at the same time as payments on the Eurodollar Rate Advances otherwise comprising part of such Borrowing. (e) If, at any time, the Administrative Agent shall notify any of the Borrowers of the suspension of the obligations of Lenders owed or holding not less than a majority in interest of the aggregate principal amount of all Advances outstanding at any time (the "AFFECTED LENDERS") to make, participate in or renew, or to fund or maintain, their Eurodollar Rate Advances pursuant to Section 2.09(c) or 2.09(d), then the Administrative Agent (in consultation with each of the Affected Lenders) and the Borrowers shall enter into negotiations in good faith with a view to agreeing upon an alternative basis acceptable to the Borrowers and the Affected Lenders for determining a substitute rate of interest (the "SUBSTITUTE RATE") for the Eurodollar Rate that shall be applicable to the Affected Lenders during the period of time that such suspension continues, which Substitute Rate shall reflect the cost to each of the Affected Lenders of making, participating in or renewing, or funding or maintaining, such Advances under the circumstances that gave rise to such suspension from alternative sources plus the Applicable Margin in effect from time to time for Eurodollar Rate Advances under the applicable Facility; provided that if any of the Affected Lenders shall be a Defaulting Lender at any such time, then such Defaulting Lender shall not be entitled to participate in the negotiations for determining a Substitute Rate and the approval of such Defaulting Lender shall not be required for an alternative rate of interest to become a Substitute Rate. If a Substitute Rate is so agreed to among the Borrowers and the Affected Lenders, then, 59 until the circumstances that gave rise to such suspension no longer apply to the Affected Lenders, all Eurodollar Rate Advances that would otherwise be made by the Affected Lenders as part of any Borrowing shall be made instead as Advances bearing interest at the Substitute Rate and all payments of principal of and interest on such Advances shall be made at the same time as payments of principal of and interest on the Eurodollar Rate Advances otherwise comprising part of such Borrowing. If at any time during which a Substitute Rate is in effect the cost to any of the Affected Lenders of making, participating in or renewing, or funding or maintaining, such Advances from alternative sources increases, the Affected Lenders shall promptly notify the Borrowers of the amount of such increase and the Borrowers shall have the option either (i) to pay to the Administrative Agent for the account of each such Affected Lender, from time to time as specified by such Lender, additional amounts sufficient to compensate such Affected Lender for such increase or (ii) to Convert each such Advance bearing interest at the Substitute Rate into a Base Rate Advance. A certificate of any of the Affected Lenders pursuant to this Section 2.09(e), submitted to the Borrowers by such Affected Lender and specifying therein the cost to such Affected Lender of making, participating in or renewing, or funding or maintaining, Eurodollar Rate Advances from alternative sources and the circumstances that gave rise to the related suspension thereof, shall be conclusive and binding for all purposes, absent manifest error. (f) Each of the Lenders hereby agrees that, upon the occurrence of any circumstances entitling such Lender to additional compensation or to cease making, participating in or renewing, or funding or maintaining, Eurodollar Rate Advances under any of the foregoing provisions of this Section 2.09, such Lender shall use reasonable efforts (consistent with its existing internal policy applied on a nondiscriminatory basis and with applicable legal and regulatory restrictions) to designate a different Applicable Lending Office for any Advances affected by such circumstances and/or to take any other reasonable actions requested by the Borrowers if the making of such designation or the taking of such actions, in the case of Section 2.09(a) or 2.09(b), would avoid the need for such additional compensation or, in the case of Section 2.09(c) or 2.09(d), would allow such Lender to continue to perform its obligations to make, to participate in or renew, or to fund or maintain, Eurodollar Rate Advances, and, in any such case, would not, in the reasonable judgment of such Lender, be otherwise disadvantageous to such Lender. If any of the Lenders entitled to additional compensation under any of the foregoing provisions of this Section 2.09 shall fail to designate a different Applicable Lending Office or to take such reasonable actions as provided in this Section 2.09(f) or if the inadequacy or illegality contemplated under Section 2.09(c) or 2.09(d), respectively, shall continue with respect to such Lender notwithstanding such designation or such reasonable actions, then, subject to the terms of Section 9.08(a), Holdings may cause such Lender to (and, if Holdings so demands, such Lender shall) assign all of its rights and obligations under this Agreement in accordance with Section 9.08(a); provided that if, upon such demand by Holdings, such Lender elects to waive its request for additional compensation pursuant to Section 2.09(a) or 2.09(b), the demand by Holdings for such Lender to so assign all of its rights and obligations under the Agreement shall thereupon be deemed withdrawn. Nothing in this Section 2.09(f) shall affect or postpone any of the rights of any of the Lenders or any of the obligations of the Borrowers under any of the foregoing provisions of this Section 2.09 in any manner. SECTION 2.10. Payments and Computations. (a) Each of the Borrowers ------------------------- shall make each payment under this Agreement and under the Notes, irrespective of any right of counterclaim or setoff (except as otherwise provided in Section 2.13), not later than 12:00 Noon (New York City time) on the day when due (or, in the case of payments made by Holdings or any of the Borrowers pursuant to Section 6.01, on the date of demand therefor) in U.S. dollars to the Administrative Agent at the Administrative Agent's Account in same day funds, with payments received by the Administrative Agent 60 after 12:00 Noon (New York City time) on any such day being deemed to have been received on the next succeeding Business Day. The Administrative Agent will promptly thereafter cause like funds to be distributed (i) if such payment by Holdings or any of the Borrowers is in respect of principal, interest, Commitment Fees or any other Obligation then payable under this Agreement and under the Notes to more than one of the Lenders, to such Lenders for the account of their respective Applicable Lending Offices in accordance with their respective Pro Rata Shares of the amounts of such respective Obligations payable to such Lenders at such time and (ii) if such payment by Holdings or any of the Borrowers is in respect of any Obligation payable under this Agreement to one of the Lenders at such time, to such Lender for the account of its Applicable Lending Office, in each case to be applied in accordance with the terms of this Agreement. Upon the acceptance of an Assignment and Acceptance by the Administrative Agent and the recording of the information contained therein in the Register pursuant to Section 9.08(d), from and after the effective date of such Assignment and Acceptance, the Administrative Agent shall make all payments under this Agreement and the Notes in respect of the interest assigned thereby to the Lender assignee thereunder, and the parties to such Assignment and Acceptance shall make all appropriate adjustments in such payments for periods prior to such effective date directly between themselves. (b) All computations of interest based on clause (a) of the definition of "Base Rate" set forth in Section 1.01 shall be made by the Administrative Agent on the basis of a year of 365 or 366 days, as the case may be, and all computations of interest based on the Eurodollar Rate or the Federal Funds Rate and all computations of fees (including, without limitation, fees payable under Section 2.07) shall be made by the Administrative Agent on the basis of a year of 360 days, in each case for the actual number of days (including the first day but excluding the last day) occurring in the period for which such interest or fees are payable. Each determination by the Administrative Agent of an interest rate or fee hereunder shall be conclusive and binding for all purposes, absent manifest error. (c) Whenever any payment under this Agreement or the Notes shall be stated to be due on a day other than a Business Day, such payment shall be made on the next succeeding Business Day, and such extension of time shall in such case be included in the computation of payment of interest or fees, as the case may be; provided, however, that if such extension would cause payment of interest on or principal of Eurodollar Rate Advances to be made in the next succeeding calendar month, such payment shall be made on the immediately preceding Business Day. (d) Unless the Administrative Agent shall have received notice from the applicable Borrower prior to the date on which any payment is due from such Borrower to any of the Lenders under this Agreement that such Borrower will not make such payment in full, the Administrative Agent may assume that such Borrower has made such payment in full to the Administrative Agent on such date and the Administrative Agent may, in reliance upon such assumption, cause to be distributed to such Lender on such date an amount equal to the amount due to such Lender on such date. If and to the extent such Borrower shall not have so made such payment in full to the Administrative Agent, each such Lender shall repay to the Administrative Agent forthwith on demand such amount distributed to such Lender, together with interest thereon, for each day from the date such amount is distributed to such Lender until the date such Lender repays such amount to the Administrative Agent, at the Federal Funds Rate. (e) Whenever any payment received by the Administrative Agent under this Agreement or any of the other Loan Documents is insufficient to pay in full all amounts due and payable to the Agents and the Lenders under or in respect of this Agreement and the other Loan Documents on 61 any date, such payment shall be distributed by the Administrative Agent and applied by the Agents and the Lenders in the following order of priority: (i) first, to the payment of all of the fees, indemnification payments, costs and expenses that are due and payable to the Agents (solely in their respective capacities as Agents) under or in respect of this Agreement or any of the other Loan Documents on such date, ratably based upon the respective aggregate amounts of all such fees, indemnification payments, costs and expenses owing to the Agents on such date; (ii) second, to the payment of all of the indemnification payments, costs and expenses that are due and payable to the Lenders under Sections 9.04 and 9.05 hereof, Section 13 of the Fox Kids Guarantee, Section 12 of the Subsidiaries Guarantee, Section 21 of the Pledge and Assignment Agreement or the applicable section of any of the other Loan Documents on such date, ratably based upon the respective aggregate amounts of all such indemnification payments, costs and expenses owing to the Lenders on such date; (iii) third, to the payment of all of the amounts that are due and payable to the Administrative Agent and the Lenders under Sections 2.09 and 2.11 hereof, Section 5 of the Fox Kids Guarantee or Section 5 of the Subsidiaries Guarantee on such date, ratably based upon the respective aggregate amounts thereof owing to the Administrative Agent and the Lenders on such date; (iv) fourth, to the payment of all of the fees that are due and payable to the Lenders under Section 2.07(a) on such date, ratably based upon the respective aggregate Commitments of the Lenders under both of the Facilities on such date; (v) fifth, to the payment of all of the accrued and unpaid interest on the Obligations of the Borrowers under or in respect of the Loan Documents that is due and payable to the Administrative Agent and the Lenders under Section 2.06(b) on such date, ratably based upon the respective aggregate amounts of all such interest owing to the Administrative Agent and the Lenders on such date; (vi) sixth, to the payment of all of the accrued and unpaid interest on the Advances that is due and payable to the Administrative Agent and the Lenders under Section 2.06(a) on such date, ratably based upon the respective aggregate amounts of all such interest owing to the Administrative Agent and the Lenders on such date; (vii) seventh, to the payment of the principal amount of all of the outstanding Advances that is due and payable to the Administrative Agent and the Lenders on such date, ratably based upon the respective aggregate amounts of all such principal owing to the Administrative Agent and the Lenders on such date; and (viii) eighth, to the payment of all other Obligations of the Loan Parties owing under or in respect of the Loan Documents that are due and payable to the Administrative Agent and the other Secured Parties on such date, ratably based upon the respective aggregate amounts of all such Obligations owing to the Administrative Agent and the other Secured Parties on such date. 62 If the Administrative Agent receives funds for application to the Obligations of the Loan Parties under or in respect of the Loan Documents under circumstances for which the Loan Documents do not specify the Advances or the Facility to which, or the manner in which, such funds are to be applied, the Administrative Agent may, but shall not be obligated to, elect to distribute such funds to each of the Lenders in accordance with such Lender's Pro Rata Share of the aggregate principal amount of all Advances outstanding at such time, in repayment or prepayment of such of the outstanding Advances or other Obligations owing to such Lender, and, in the case of the Term Facility, for application to such principal repayment installments thereof, as the Administrative Agent shall direct, and, in the case of the Revolving Credit Facility, for application to such scheduled commitment reduction installments thereof, as the Administrative Agent shall direct. SECTION 2.11. Taxes. (a) Any and all payments by Holdings or any of ----- the Borrowers under or in respect of this Agreement or any of the other Loan Documents to which Holdings or such Borrower is a party shall be made, in accordance with Section 2.10 (or the applicable provisions of such other Loan Document), free and clear of and without deduction for any and all present or future taxes, levies, imposts, duties, deductions, charges or withholdings, and all liabilities with respect thereto, excluding, in the case of each of the Lenders and each of the Agents, taxes that are imposed on its overall net income by the United States of America and taxes that are imposed on its overall net income (and franchise taxes that are imposed in lieu thereof) by the state or foreign jurisdiction under the laws of which such Lender or such Agent, as the case may be, is organized or is a resident, or has a fixed place of business or a permanent establishment, or any political subdivision of any of the foregoing, and, in the case of each of the Lenders, taxes that are imposed on its overall net income (and franchise taxes that are imposed in lieu thereof) by the state or foreign jurisdiction of either of the Applicable Lending Offices of such Lender or any political subdivision thereof (all such nonexcluded taxes, levies, imposts, duties, deductions, charges, withholdings and liabilities in respect of payments by Holdings or any of the Borrowers under or in respect of this Agreement or any of the other Loan Documents to which Holdings or any such Borrower is a party being, collectively, "TAXES"). If Holdings or any of the Borrowers shall be required by applicable Requirements of Law to deduct any Taxes from or in respect of any sum payable under or in respect of this Agreement or any of the other Loan Documents to which Holdings or such Borrower is a party to any of the Lenders or any of the Agents, (i) the sum payable shall be increased as may be necessary so that after making all required deductions (including deductions applicable to additional sums payable under this Section 2.11) such Lender or such Agent, as the case may be, receives an amount equal to the sum it would have received had no such deductions been made, (ii) Holdings or such Borrower shall make such deductions and (iii) Holdings or such Borrower shall pay the full amount deducted to the relevant taxation authority or other Governmental Authority in accordance with the applicable Requirements of Law. (b) In addition, Holdings and each of the Borrowers hereby agree to pay any present or future stamp, recording, documentary, excise, property or similar taxes, charges or levies that arise from any payment made under or in respect of this Agreement or any of the other Loan Documents to which Holdings or such Borrower is a party, or from the execution, delivery or registration of, or any performance under, or otherwise with respect to, under or in respect of this Agreement or any of the other Loan Documents to which Holdings or such Borrower is a party (collectively, "OTHER TAXES"). (c) Holdings and each of the Borrowers hereby agree to indemnify each of the Lenders and each of the Agents for the full amount of Taxes and Other Taxes, and for the full amount of taxes imposed by any jurisdiction on amounts payable under this Section 2.11, imposed on or paid by 63 such Lender or such Agent, as the case may be, and any liability (including penalties, additions to tax, interest and expenses) arising therefrom or with respect thereto. The indemnity by Holdings and the Borrowers provided for in this subsection (c) shall apply and be made whether or not the Taxes or Other Taxes for which indemnification hereunder is sought have been correctly or legally asserted; provided, however, that such Lender or such Agent seeking such indemnification shall take all reasonable actions (consistent with its existing internal policy applied on a nondiscriminatory basis and legal and regulatory restrictions) requested by Holdings or any of the Borrowers to assist Holdings or such Borrower in recovering the amounts paid thereby pursuant to this subsection (c) from the relevant taxation authority or other Governmental Authority. Amounts payable by Holdings or any of the Borrowers under the indemnity set forth in this subsection (c) shall be paid within 30 days from the date on which the applicable Lender or Agent, as the case may be, makes written demand therefor. With respect to each payment by Holdings or any of the Borrowers under or in respect of this Agreement or any of the other Loan Documents to which Holdings or such Borrower is a party, the amount of Taxes due from Holdings or such Borrower pursuant to this subsection (c) shall only be payable to the extent such amount exceeds the amount of Taxes paid by Holdings or such Borrower pursuant to subsection (a) of this Section 2.11 with respect to such payment. (d) Within 30 days after the date of any payment of Taxes, Holdings or the Borrower making such payment (or on whose behalf such payment was made) shall furnish to the Administrative Agent, at its address referred to in Section 9.02, the original or a certified copy of a receipt evidencing payment thereof, to the extent such a receipt is issued therefor, or other written proof of payment thereof that is reasonably satisfactory to the Administrative Agent. In the case of any payment under or in respect of this Agreement or any of the other Loan Documents by or on behalf of Holdings or any of the Borrowers through an account or branch outside the United States, or on behalf of Holdings or such Borrower by a payor that is not a United States person, if Holdings or such Borrower determines that no Taxes are payable in respect thereof, Holdings or such Borrower shall furnish, or shall cause such payor to furnish, to the Administrative Agent, at its address referred to in Section 9.02, an opinion of counsel reasonably acceptable to the Administrative Agent stating that such payment is exempt from Taxes. For purposes of this subsection (d) and subsection (e) of this Section 2.11, the terms "UNITED STATES" and "UNITED STATES PERSON" shall have the meanings specified in Section 7701 of the Internal Revenue Code. (e) Each of the Lenders organized under the laws of a jurisdiction outside the United States shall, on or prior to the date of its execution and delivery of this Agreement in the case of each of the Initial Lenders, and on the date of the Assignment and Acceptance pursuant to which it becomes a Lender in the case of each of the other Lenders, and from time to time thereafter as reasonably requested in writing by Holdings or the Administrative Agent (but only so long thereafter as such Lender remains lawfully able to do so), provide Holdings and the Administrative Agent with two original Internal Revenue Service forms 1001 or 4224 or, in the case of any of the Lenders that is claiming exemption from United States withholding tax under Section 871(h) or 881(c) of the Internal Revenue Code with respect to payments of "portfolio interest", form W-8 (and, if such Lender delivers a form W-8, a certificate representing that such Lender is not (i) a "bank" for purposes of Section 881(c) of the Internal Revenue Code, (ii) a ten-percent shareholder (within the meaning of Section 871(h)(3)(B) of the Internal Revenue Code) of Holdings or any of the Borrowers or (iii) a controlled foreign corporation related to Holdings or any of the Borrowers (within the meaning of Section 864(d)(4) of the Internal Revenue Code), as appropriate), or any successor or other form prescribed by the Internal Revenue Service, certifying that such Lender is exempt from or entitled to a reduced rate of United States withholding tax on payments pursuant to this Agreement or the other Loan Documents or, in the case of a Lender 64 delivering a form W-8, certifying that such Lender is a foreign corporation, partnership, estate or trust. If the forms referred to above in this subsection (e) that are provided by a Lender at the time such Lender first becomes a party to this Agreement indicate a United States interest withholding tax rate in excess of zero, withholding tax at such rate shall be considered excluded from Taxes unless and until such Lender provides the appropriate form certifying that a lesser rate applies, whereupon withholding tax at such lesser rate shall be considered excluded from Taxes solely for the periods governed by such form. However, if, at the date of the Assignment and Acceptance pursuant to which a Lender assignee becomes a party to this Agreement, the Lender assignor was entitled to payments under subsection (a) of this Section 2.11 in respect of United States withholding tax with respect to interest paid at such date, then, to such extent (and only to such extent), the term "Taxes" shall include (in addition to withholding taxes that may be imposed in the future or other amounts otherwise includable in Taxes) United States withholding tax, if any, applicable with respect to such Lender assignee on such date. If any of the forms, certificates or other documents referred to in this subsection (e) requires the disclosure of information, other than information necessary to compute the tax payable and information required on the date hereof by Internal Revenue Service form 1001, 4224 or W-8 (or the related certificate described above), that a Lender reasonably considers to be confidential, such Lender shall give notice thereof to Holdings and the Administrative Agent and shall not be obligated to include in such form, certificate or document such confidential information. None of the Lenders shall be entitled to payment pursuant to subsection (a), (b) or (c) of this Section 2.11 with respect to any additional Taxes that resulted solely and directly from the change in either of the Applicable Lending Offices of such Lender (other than any such additional Taxes that are imposed as a result of a change in the applicable Requirements of Law, or in the interpretation or application thereof, occurring after the date of such change), unless such change is made pursuant to the terms of Section 2.09(f) or 2.11(g) or as a result of a request therefor by Holdings or any of the Borrowers. (f) For any period with respect to which any of the Lenders has failed (i) to provide Holdings with the appropriate form, certificate or other document described in subsection (e) of this Section 2.11 (other than if such failure is due to a change in the applicable Requirements of Law, or in the interpretation or application thereof, occurring after the date on which a form, certificate or other document originally was required to be provided or if such form otherwise is not required under subsection (e) of this Section 2.11) or (ii) to notify the Appropriate Borrowers of any change in either of the Applicable Lending Offices of such Lender pursuant to the definition of "Base Rate Lending Office" or "Eurodollar Lending Office" set forth in Section 1.01, as applicable (other than any such change that is made pursuant to the terms of Section 2.09(f) or 2.11(g) or as a result of a request therefor by Holdings or any of the Borrowers), such Lender shall not be entitled to any payment or indemnification under subsection (a) or (c) of this Section 2.11 with respect to Taxes imposed by the United States by reason of such failure; provided, however, that should any of the Lenders become subject to Taxes because of its failure to deliver a form, certificate or other document required hereunder, Holdings and each of the Borrowers hereby agree to take such steps as such Lender shall reasonably request to assist such Lender in recovering such Taxes. (g) Any Lender claiming any additional amounts payable pursuant to this Section 2.11 hereby agrees to use reasonable efforts (consistent with its existing internal policy applied on a nondiscriminatory basis and legal and regulatory restrictions) to change the jurisdiction of either of its Applicable Lending Offices and/or to take any other reasonable actions requested by Holdings if the making of such a change or the taking of such reasonable actions would avoid the need for, or reduce the amount of, any such additional amounts that may thereafter accrue and would not, in the reasonable 65 judgment of such Lender, be otherwise disadvantageous to such Lender. If any Lender entitled to additional compensation under any of the foregoing provisions of this Section 2.11 shall fail to change the jurisdiction of either of its Applicable Lending Offices or to take such reasonable actions as provided in this subsection (g), or if the failure of such Lender to disclose information which such Lender has determined to be confidential in the form, certificate or other document delivered by such Lender pursuant to subsection (e) of this Section 2.11 would increase the liability of Holdings or any of the Borrowers under this Section 2.11, then, subject to the terms of Section 9.08(a), Holdings may cause such Lender to (and, if Holdings so demands, such Lender shall) assign all of its rights and obligations under this Agreement in accordance with Section 9.08(a); provided that if, upon such demand by Holdings, such Lender elects to waive its right to additional amounts payable pursuant to this Section 2.11, the demand by Holdings for such Lender to so assign all of its rights and obligations under this Agreement shall thereupon be deemed withdrawn. Nothing in this subsection (g) shall affect or postpone any of the rights of any of the Lenders or any of the obligations of Holdings or any of the Borrowers under any of the foregoing provisions of this Section 2.11 in any manner. (h) All payments made by any of the Borrowers pursuant to subsection (a), (b) or (c) of this Section 2.11 shall, to the fullest extent permitted by applicable law, be treated by such Borrower as additional interest. SECTION 2.12. Sharing of Payments, Etc. If any of the Lenders shall ------------------------ obtain at any time any payment (whether voluntary, involuntary, through the exercise of any right of setoff or otherwise) on account of (a) Obligations due and payable to such Lender under or in respect of this Agreement and the other Loan Documents at such time in excess of its ratable share (according to the proportion of (i) the amount of such Obligations due and payable to such Lender at such time (other than pursuant to Section 2.09, 2.11, 9.04, 9.05 or 9.08) to (ii) the aggregate amount of the Obligations due and payable to all of the Lenders under or in respect of this Agreement and the other Loan Documents at such time) of payments on account of the Obligations due and payable to all of the Lenders under or in respect of this Agreement and the other Loan Documents at such time obtained by all of the Lenders at such time or (b) Obligations owing (but not due and payable) to such Lender under or in respect of this Agreement and the other Loan Documents at such time in excess of its ratable share (according to the proportion of (i) the amount of such Obligations owing (but not yet due and payable) to such Lender at such time (other than pursuant to Section 2.09, 2.11, 9.04, 9.05 or 9.08) to (ii) the aggregate amount of the Obligations owing (but not due and payable) to all of the Lenders under or in respect of this Agreement and the other Loan Documents at such time) of payments on account of the Obligations owing (but not due and payable) to all of the Lenders under or in respect of this Agreement and the other Loan Documents at such time obtained by all of the Lenders at such time, such Lender shall forthwith purchase from the other Lenders such participations in the Obligations due and payable or owing to them, as the case may be, as shall be necessary to cause such purchasing Lender to share the excess payment ratably with each of them; provided, however, that if all or any portion of such excess payment is thereafter recovered from such purchasing Lender, such purchase from each of the other Lenders shall be rescinded and such other Lender shall repay to the purchasing Lender the purchase price to the extent of such other Lender's ratable share (according to the proportion of (A) the purchase price paid to such other Lender to (B) the aggregate purchase price paid to all of the Lenders) of such recovery, together with an amount equal to such other Lender's ratable share (according to the proportion of (1) the amount of such other Lender's required repayment to (2) the total amount so recovered from the purchasing Lender) of any interest or other amount paid or payable by the purchasing Lender in respect of the total amount so recovered. Holdings and each of the Borrowers hereby agree that any Lender so purchasing a 66 participation from another Lender pursuant to this Section 2.12 may, to the fullest extent permitted by applicable law, exercise all of its rights of payment (including, without limitation, the right of setoff) with respect to such participation as fully as if such Lender were the direct creditor of Holdings or such Borrower in the amount of such participation. SECTION 2.13. Defaulting Lenders. (a) If, at any time, (i) any of ------------------ the Lenders shall be a Defaulting Lender, (ii) such Defaulting Lender shall owe one or more Defaulted Advances to any of the Borrowers and (iii) such Borrower or any of the other Borrowers shall be required to make any payment under this Agreement or any of the other Loan Documents to or for the account of such Defaulting Lender, then the paying Borrower may, so long as no Default shall have occurred and be continuing at such time and to the fullest extent permitted by applicable law, set off and otherwise apply the obligation of such Borrower and the other Borrowers to make such payment to or for the account of such Defaulting Lender against the obligation of such Defaulting Lender to make such Defaulted Advances. If, on any date, any of the Borrowers shall so set off and otherwise apply its obligation or the obligation of any of the other Borrowers to make any such payment against the obligation of such Defaulting Lender to make any such Defaulted Advance on or prior to such date, the amount so set off and otherwise applied by such Borrower shall constitute for all purposes of this Agreement and the other Loan Documents an Advance under each of the Facilities pursuant to which, and made on the respective dates on which, each such Defaulted Advance was originally required to have been made by such Defaulting Lender pursuant to Section 2.01 (and, in doing so, such setoff shall satisfy the obligation of such Borrower to such Defaulting Lender to the extent of the aggregate amount so set off or otherwise applied). Each such Advance shall be a Base Rate Advance and shall be considered for all purposes of this Agreement to comprise part of the Borrowing in connection with which such Defaulted Advance was originally required to have been made pursuant to Section 2.01, even if the other Advances comprising such Borrowing shall be Eurodollar Rate Advances on the date such Advance is deemed to be made pursuant to this Section 2.13(a). Each of the Borrowers shall promptly notify the Administrative Agent at any time that such Borrower exercises its right of setoff or otherwise reduces the amount of its obligation or the obligation of any of the other Borrowers to any Defaulting Lender pursuant to this Section 2.13(a) and shall set forth in such notice (A) the name of the Defaulting Lender and the Defaulted Advance required to be made by such Defaulting Lender, (B) the obligation of the Borrowers to such Defaulting Lender against which such Defaulted Advance was so set off and applied and (C) the amount set off and otherwise applied in respect of such Defaulted Advance pursuant to this Section 2.13(a). Any portion of such payment otherwise required to be made by any of the Borrowers to or for the account of such Defaulting Lender that is paid by such Borrower, after giving effect to the amount set off and otherwise applied by such Borrower or any of the other Borrowers pursuant to this Section 2.13(a), shall be applied by the Administrative Agent as specified in Section 2.13(b) or 2.13(c). (b) If, at any time, (i) any of the Lenders shall be a Defaulting Lender, (ii) such Defaulting Lender shall owe a Defaulted Amount to the Administrative Agent or any of the other Lenders and (iii) any of the Borrowers shall make any payment under or in respect of this Agreement or any of the other Loan Documents to the Administrative Agent for the account of such Defaulting Lender, then the Administrative Agent may, on its behalf or on behalf of such other Lenders and to the fullest extent permitted by applicable law, apply at such time the amount so paid by such Borrower to or for the account of such Defaulting Lender to the payment of each such Defaulted Amount to the extent required to pay such Defaulted Amount. If the Administrative Agent shall so apply any such amount to the payment of any such Defaulted Amount on any date, the amount so applied by the Administrative Agent shall constitute for all purposes of this Agreement and the other Loan Documents payment, to such 67 extent, of such Defaulted Amount on such date. Any such amount so applied by the Administrative Agent shall be retained by the Administrative Agent or distributed by the Administrative Agent to such other Lenders in accordance with the respective Pro Rata Shares of such Defaulted Amounts payable at such time to the Administrative Agent and such other Lenders and, if the amount of such payment made by such Borrower shall at such time be insufficient to pay all of the Defaulted Amounts owing to the Administrative Agent and the other Lenders at such time, in the following order of priority: (A) first, to the Administrative Agent for any Defaulted Amount owing to the Administrative Agent (solely in its capacity as Administrative Agent) at such time; and (B) second, to the Lenders for any Defaulted Amounts owing to the Lenders at such time, ratably based upon the respective Defaulted Amounts owing to the Lenders at such time. Any portion of such amount paid by any of the Borrowers for the account of such Defaulting Lender remaining, after giving effect to the amount applied by the Administrative Agent pursuant to this Section 2.13(b), shall be applied by the Administrative Agent as specified in Section 2.13(c). (c) If, at any time, (i) any of the Lenders shall be a Defaulting Lender, (ii) such Defaulting Lender shall not owe a Defaulted Advance or a Defaulted Amount and (iii) any of the Borrowers, the Administrative Agent or any of the other Lenders shall be required to pay or to distribute any amount under or in respect of this Agreement or any of the other Loan Documents to or for the account of such Defaulting Lender, then such Borrower or such other Lender shall pay such amount to the Administrative Agent to be held by the Administrative Agent, to the fullest extent permitted by applicable law, in escrow or the Administrative Agent shall, to the fullest extent permitted by applicable law, hold in escrow such amount otherwise held by it. Any funds held by the Administrative Agent in escrow under this Section 2.13(c) shall be deposited by the Administrative Agent in an account with Citibank, in the name and under the control of the Administrative Agent, but subject to the provisions of this Section 2.13(c). The terms applicable to such account, including the rate of interest payable with respect to the credit balance of such account from time to time, shall be Citibank's standard terms applicable to escrow accounts maintained with it. Any interest credited to such account from time to time shall be held by the Administrative Agent in escrow under, and applied by the Administrative Agent from time to time in accordance with the terms of, this Section 2.13(c). The Administrative Agent shall, to the fullest extent permitted by applicable law, apply all funds so held in escrow by it from time to time to the extent necessary to make any Advances required to be made by such Defaulting Lender to any of the Borrowers and to pay any other amounts payable by such Defaulting Lender under this Agreement or any of the other Loan Documents to the Administrative Agent, any of the other Agents or any of the other Lenders, as and when such Advances or other amounts are required to be made or paid and, if the amount so held in escrow shall at any time be insufficient to make all such Advances and to pay all such other amounts required to be made or paid at such time, in the following order of priority: (A) first, to the Agents for any Advances and any other amounts due and payable by such Defaulting Lender to the Agents (solely in their respective capacities as Agents) under or in respect of this Agreement and the other Loan Documents at such time, ratably based upon the respective aggregate Advances and other amounts due and payable to the Agents at such time; (B) second, to the other Lenders for any amounts due and payable by such Defaulting Lender to the other Lenders under or in respect of this Agreement and the other Loan Documents 68 at such time, ratably based upon the respective aggregate amounts due and payable to the other Lenders at such time; and (C) third, to the Appropriate Borrower for any Advances required to be made by such Defaulting Lender pursuant to a Commitment of such Defaulting Lender. If any of the Lenders that is a Defaulting Lender shall, at any time, cease to be a Defaulting Lender, any funds held by the Administrative Agent in escrow at such time with respect to such Lender shall be distributed by the Administrative Agent to such Lender and applied by such Lender to the Obligations owing to such Lender under or in respect of this Agreement and the other Loan Documents at such time, ratably based upon the respective amounts of such Obligations outstanding at such time. (d) The rights and remedies against a Defaulting Lender under this Section 2.13 are in addition to other rights and remedies that any of the Borrowers may have against such Defaulting Lender with respect to any Defaulted Advances and that the Administrative Agent, any of the other Agents or any of the other Lenders may have against such Defaulting Lender with respect to any Defaulted Amount. SECTION 2.14. Use of Proceeds. The proceeds of the Revolving Credit --------------- Advances shall be (or, in the case of the Existing Revolving Credit Advances, shall remain) available on and from time to time after the Effective Date, and each of the Borrowers hereby agrees to use such proceeds, solely to finance in part the Refinancing, to pay certain fees and expenses incurred in connection with the consummation of the Transaction and for other general corporate purposes not otherwise prohibited under the terms of the Loan Documents. The proceeds of the Term Advances shall be (or, in the case of the Existing Term Advances, shall remain) available on the Effective Date, and IFE hereby agrees to use such proceeds solely to finance in part the Refinancing and to pay certain fees and expenses incurred in connection with the consummation of the Transaction. ARTICLE III CONDITIONS OF LENDING SECTION 3.01. Conditions Precedent to Effectiveness of this --------------------------------------------- Agreement. This Agreement shall become effective on and as of the first date (the "EFFECTIVE DATE") on which all of the following conditions precedent shall have been satisfied: (a) The Lenders shall be reasonably satisfied with (i) the organizational and legal structure and capitalization of Fox Kids and Holdings and (ii) all changes in the organizational and legal structure and capitalization of each of the other Loan Parties and their respective Subsidiaries since the Phase II Closing Date (including, in the case of clauses (i) and (ii) of this subsection (a), without limitation, the terms and conditions of the Constitutive Documents and each class of Equity Interests in Fox Kids, Holdings, each such other Loan Party and each such Subsidiary and of each agreement or instrument relating to such structure or capitalization). All of the Related Documents shall be in full force and effect in the form received by the Lenders on or prior to the Effective Date. 69 (b) All of the Governmental Authorizations, and all of the consents, approvals and authorizations of, notices and filings to or with, and other actions by, any other Person necessary in connection with any aspect of the Transaction, any of the Loan Documents or the Related Documents or any of the other transactions contemplated thereby shall have been obtained (without the imposition of any conditions that are not reasonably acceptable to the Lenders) and shall remain in full force and effect; all applicable waiting periods shall have expired without any action being taken by any competent authority; and no Requirement of Law shall be applicable in the reasonable judgment of the Lenders that restrains, prevents or imposes materially adverse conditions upon any aspect of the Transaction, any of the Loan Documents or the Related Documents or any of the other transactions contemplated thereby. (c) Before giving effect and immediately after giving pro forma effect to the Transaction, no material adverse change shall have occurred in the business, condition (financial or otherwise), operations, performance, properties or prospects of Fox Kids and its Subsidiaries, taken as a whole, since December 31, 1996. (d) There shall exist no action, suit, investigation, litigation, arbitration or proceeding pending or, to the best knowledge of Holdings and each of the Borrowers, threatened against or affecting any of the Loan Parties or any of their respective Subsidiaries or any of the property or assets thereof in any court or before any arbitrator or by or before any Governmental Authority of any kind (i) that, either individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect or (ii) in which there is a reasonable likelihood of an adverse determination and which purports to affect the legality, validity, binding effect or enforceability of any aspect of the Transaction, any of the Loan Documents or the Related Documents or any of the other transactions contemplated thereby. (e) Each aspect of the Transaction shall have been consummated or shall be consummated on the Effective Date in compliance with all applicable Requirements of Law. All of the Collateral shall be owned by one or more of the Loan Parties, in each case free and clear of any Lien, other than the liens and security interests created under the Loan Documents; and the Administrative Agent, on behalf of the Secured Parties, shall have a valid and perfected first priority lien on and security interest in all of the Collateral. All of the filings, recordations and searches necessary or desirable in connection with such liens and security interests shall have been duly made, and all filing and recording fees and taxes shall have been duly paid. (f) All of the Senior Notes Documents shall be on terms and conditions reasonably satisfactory to the Lenders; and each of the Lenders shall have received a copy of the Final Offering Memorandum at least two Business Days prior to the Effective Date. Fox Kids shall have received at least $725,000,000 in gross proceeds from the issuance and sale of the Senior Notes, from which at least $615,000,000 of such gross proceeds shall have been used to permanently repay Existing Advances outstanding on the Effective Date and accrued and unpaid interest thereon and the remainder of which shall have been used or shall be used to pay fees and expenses incurred in connection with the consummation of the Transaction and to repay outstanding principal under, and accrued and unpaid interest on, the Existing NAHI Subordinated Notes. After giving effect to the Transaction and all of the Borrowings to be made on the Effective Date, the amount of the aggregate Unused Revolving Credit Commitments shall be at least $75,000,000. 70 (g) The representations and warranties contained in each of the Loan Documents shall be correct in all material respects on and as of the Effective Date, before and after giving effect to the Borrowings to be made on the Effective Date and to the application of proceeds therefrom, as though made on and as of such date (other than any such representation and warranty that, by its terms, refers to a specific date other than the Effective Date, in which case, as of such specific date). No event shall have occurred and be continuing, or shall occur as a result of any of the Borrowings to be made on the Effective Date or the application of proceeds therefrom, that would constitute a Default. (h) All of the accrued reasonable fees and expenses of the Agents and the Lenders (including, without limitation, all of the accrued reasonable fees and expenses of counsel for the Administrative Agent and local counsel for the Lenders) that are required to be paid by Fox Kids or any of its Affiliates shall have been paid in full. (i) The Administrative Agent shall have received on or before the Effective Date the following, each dated such date (unless otherwise specified), in form and substance reasonably satisfactory to the Lenders (unless otherwise specified) and (except for the Notes) in sufficient copies for each of the Lenders: (i) The Revolving Credit Notes, payable to the order of the Revolving Credit Lenders, and the Term Notes, payable to the order of the Term Lenders, respectively. (ii) Certified copies of the resolutions of the board of directors (or persons performing similar functions) of each of the Loan Parties approving each of the Loan Documents and the Related Documents to which it is or is to be a party, the consummation of each aspect of the Transaction involving or affecting such Loan Party and the other transactions contemplated by any of the foregoing, and of all documents evidencing necessary Governmental Authorizations, or other necessary consents, approvals, authorizations, notices, filings or actions, with respect to any of the Loan Documents or the Related Documents to which it is or is to be a party, the consummation of any aspect of the Transaction involving or affecting such Loan Party or any of the other transactions contemplated by any of the foregoing. (iii) A copy of all of the Constitutive Documents of Holdings, and each amendment thereto, certified (as of a date reasonably near the Effective Date) as being a true and complete copy thereof by the Secretary of State of the State of Delaware. (iv) A copy of a certificate of the Secretary of State of the State of Delaware, dated reasonably near the Effective Date, listing the operating agreement (or similar Constitutive Document) of Holdings and each amendment thereto on file in the office of such Secretary of State and certifying that (A) such amendments are the only amendments to the operating agreement (or similar Constitutive Document) of Holdings on file in its office, (B) Holdings has paid all franchise taxes (or the equivalent thereof) to the date of such certificate and (C) Holdings is duly organized and is in good standing under the laws of the State of Delaware. 71 (v) A copy of the certificate of the Secretary of State (or the equivalent Governmental Authority) of each jurisdiction in which Holdings is qualified or licensed as a foreign limited liability company, in each case dated reasonably near the Effective Date and stating that Holdings is duly qualified and in good standing as a foreign limited liability company in such jurisdiction and has filed all annual reports required to be filed, and has paid all franchise taxes (or the equivalent thereof) required to be paid, in such jurisdiction to the date of such certificate. (vi) A certificate of each of the Loan Parties, signed on behalf of such Loan Party by its President or a Vice President and its Secretary or an Assistant Secretary (or persons performing similar functions), dated the Effective Date (the statements made in which certificate shall be true on and as of the Effective Date), certifying as to: (A) the absence of any amendments to the certificate or articles of incorporation (or similar Constitutive Document) of such Loan Party since the date of the Secretary of State's (or equivalent Governmental Authority's) certificate delivered pursuant to Section 3.01(i)(iv) of the Existing Credit Agreement, or any steps taken by the board of directors (or persons performing similar functions) or the shareholders, partners, members or equivalent persons of such Loan Party to effect or authorize any further amendment, supplement or other modification thereto; (B) the accuracy and completeness of the bylaws (or similar Constitutive Documents) of such Loan Party as in effect on the date on which the resolutions of the board of directors (or persons performing similar functions) of such Loan Party referred to in clause (ii) of this Section 3.01(i) were adopted and on the Effective Date (a copy of which shall be attached to such certificate); (C) the due organization and good standing of such Loan Party as a Person organized under the laws of the jurisdiction of its organization, and the absence of any proceeding (either pending or contemplated) for the dissolution, liquidation or other termination of the existence of such Loan Party or any of their respective Subsidiaries; (D) since December 31, 1996, the absence of any change in the jurisdiction of organization of such Loan Party, any merger, consolidation or other similar transaction directly or indirectly involving such Loan Party or any issuance or sale of any Equity Interests in such Loan Party, except for (i) the Merger and (ii) the issuance of all of the Equity Interests in Holdings to Fox Kids in connection with the formation of Holdings on October 21, 1997; (E) the legal and beneficial ownership by such Loan Party of all of the Collateral in which it is purported to have granted a lien and security interest to the Administrative Agent, on behalf of the Secured Parties, under the Collateral Documents, free and clear of all Liens, except for the liens and security interests created under the Loan Documents; 72 (F) the accuracy in all material respects of the representations and warranties made by such Loan Party in the Loan Documents to which it is or is to be a party as though made on and as of the Effective Date, before and after giving effect to the Borrowings to be made on the Effective Date and to the application of proceeds therefrom; and (G) the absence of any event occurring and continuing, or resulting from any of the Borrowings to be made on the Effective Date or the application of proceeds therefrom, that would constitute a Default. (vii) A certificate of the Secretary or an Assistant Secretary (or a person performing similar functions) of each of the Loan Parties certifying the names and true signatures of the officers, partners, members or equivalent persons of such Loan Party authorized to sign each of the Loan Documents to which it is or is to be a party and the other agreements, instruments and documents to be delivered hereunder and thereunder. (viii) A pledge and assignment agreement, in substantially the form of Exhibit D-1 hereto (together with each Pledge Agreement Supplement and each other pledge agreement, assignment agreement (or other similar document) delivered pursuant to Section 5.02(j), in each case as amended, supplemented or otherwise modified hereafter from time to time in accordance with the terms thereof and Section 9.01, the "PLEDGE AND ASSIGNMENT AGREEMENT"), duly executed by each of the Loan Parties, together with (unless otherwise delivered to the Administrative Agent, in form and substance reasonably satisfactory to the Lenders, prior to the Effective Date): (A) certificates representing the Initial Pledged Interests referred to therein, accompanied by undated stock powers or other appropriate powers, duly executed in blank; (B) instruments evidencing the Initial Pledged Indebtedness referred to therein, duly endorsed in blank; (C) proper financing statements (Form UCC-1 or a comparable form) or amendments to existing financing statements (Form UCC-3 or a comparable form) or the equivalent thereof under the Uniform Commercial Code (or any similar Requirements of Law) of all jurisdictions that may be necessary or that the Administrative Agent may reasonably deem desirable in order to perfect and protect the liens and security interests created or purported to be created under the Pledge and Assignment Agreement, covering the Collateral described therein, in each case completed in a manner satisfactory to the Lenders and duly executed by the applicable Loan Party; (D) each of the Cash Collateral Account Letters, duly executed by the applicable Borrower and Citibank; and (E) evidence that all of the other actions (including, without limitation, the completion of all of the other recordings and filings of or with 73 respect to the Pledge and Assignment Agreement) that may be necessary or that the Administrative Agent may reasonably deem desirable in order to perfect and protect the liens and security interests created under the Pledge and Assignment Agreement have been taken or will be taken in accordance with the terms of the Loan Documents. (ix) (A) An amended and restated memorandum of deposit of shares of equity interests, in substantially the form of Exhibit D-2 hereto (as further amended, supplemented or otherwise modified hereafter from time to time in accordance with the terms thereof and Section 9.01, the "U.K./SABAN U.K. PLEDGE AGREEMENT"), duly executed by Saban, and (B) an amended and restated memorandum of deposit of shares of equity interests, in substantially the form of Exhibit D-3 hereto (as further amended, supplemented or otherwise modified hereafter from time to time in accordance with the terms thereof and Section 9.01, the "U.K./FKE PLEDGE AGREEMENT"), duly executed by each of FKE Holdings, Fox Kids Network and Fox Kids Europe Limited. (x) A guarantee, in substantially the form of Exhibit E-1 hereto (as amended, supplemented or otherwise modified hereafter from time to time in accordance with the terms thereof and Section 9.01, the "FOX KIDS GUARANTEE"), duly executed by Fox Kids. (xi) An amended and restated guarantee, in substantially the form of Exhibit E-2 hereto (together with each Guarantee Supplement delivered pursuant to Section 5.02(j), in each case as amended, supplemented or otherwise modified hereafter from time to time in accordance with the terms thereof and Section 9.01, the "SUBSIDIARIES GUARANTEE"), duly executed by each of the wholly owned Domestic Subsidiaries and each of the other Subsidiaries of Holdings that are to constitute Restricted Subsidiaries on the Effective Date. (xii) An assumption agreement, in substantially the form of Exhibit F hereto (the "ASSUMPTION AGREEMENT"), duly executed by Fox Kids and IFE. (xiii) Certified copies of all of the Related Documents, all of the Senior Notes Documents and all of the agreements, instruments and other documents evidencing or setting forth the terms and conditions of the Surviving Indebtedness that is outstanding or has commitments for the extension of credit on the Effective Date in an aggregate amount of at least $1,000,000, in each case duly executed by each of the parties thereto. (xiv) Certified copies of (A) each of the employment and other compensation agreements with each senior executive officer of any of the Loan Parties in effect on the Effective Date and (B) the Consulting Agreement and the Consulting Agreement Guaranty. (xv) Certified copies of forecasts prepared by management of Fox Kids, in form and substance reasonably satisfactory to the Lenders, of Consolidated balance sheets, income statements and cash flow statements of Fox Kids and its Subsidiaries on an annual basis for each Fiscal Year from the Fiscal Year in which the Effective Date occurs through the scheduled Termination Date. 74 (xvi) Evidence of all of the insurance of Fox Kids and its Subsidiaries required to be maintained thereby under Section 5.01(d) hereof or Section 7(c) of the Fox Kids Guarantee. (xvii) A duly completed and executed Notice of Borrowing for each of the Borrowings to be made on the Effective Date. (xviii) A favorable opinion of Louis A. Isakoff, Esq., General Counsel of IFE, in substantially the form of Exhibit G-1 hereto, and addressing such other matters as any of the Lenders through the Administrative Agent may reasonably request. (xix) (A) A favorable opinion of Squadron, Ellenoff, Plesent & Sheinfeld, LLP, counsel for the Loan Parties, in substantially the form of Exhibit G-2 hereto, and addressing such other matters as any of the Lenders through the Administrative Agent may reasonably request, and (B) a letter from Squadron, Ellenoff, Plesent & Sheinfeld, LLP, counsel for the Loan Parties, addressed to the Administrative Agent and each of the Lenders and otherwise in form and substance reasonably satisfactory to the Administrative Agent, stating that the Administrative Agent and each such Lender may rely upon the favorable opinion of such counsel being delivered in connection with the issuance and sale of the Senior Notes, together with a copy of such opinion. (xx) (A) A favorable opinion of Troop Meisinger Steuber & Pasich, LLP, special counsel for the Loan Parties, in substantially the form of Exhibit G-3 hereto, and addressing such other matters as any of the Lenders through the Administrative Agent may reasonably request, and (B) a letter from Troop Meisinger Steuber & Pasich, LLP, special counsel for the Loan Parties, addressed to the Administrative Agent and each of the Lenders and otherwise in form and substance reasonably satisfactory to the Administrative Agent, stating that the Administrative Agent and each such Lender may rely upon the favorable opinion of such counsel being delivered in connection with the issuance and sale of the Senior Notes, together with a copy of such opinion. (xxi) (A) A favorable opinion of Westaway & Co., special United Kingdom counsel for Saban, in substantially the form of Exhibit G-4 hereto and (B) a favorable opinion of Norton Rose, special United Kingdom counsel for FKE Holdings, Fox Kids Network and Fox Kids Europe Limited, in substantially the form of Exhibit G-5 hereto and, in each case addressing such other matters as any of the Lenders through the Administrative Agent may reasonably request. (xxii) A favorable opinion of Shearman & Sterling, counsel for the Administrative Agent, in form and substance satisfactory to the Administrative Agent. SECTION 3.02. Conditions Precedent to Each Borrowing. The obligation -------------------------------------- of each of the Appropriate Lenders to make an Advance on the occasion of each Borrowing (including each Borrowing made on the Effective Date) shall be subject to the further conditions precedent that on the date of such Borrowing (a) the following statements shall be true (and each of the giving of the applicable Notice of Borrowing by any of the Borrowers and the acceptance by the Borrower that requested such Borrowing of the proceeds of such Borrowing shall constitute a representation and warranty by such 75 Borrower that, both on the date of such notice and on the date of such Borrowing, such statements are true): (i) the representations and warranties contained in each of the Loan Documents are correct in all material respects on and as of such date, before and after giving effect to such Borrowing and to the application of the proceeds therefrom, as though made on and as of such date (other than any such representation and warranty that, by its terms, refers to a specific date other than the date of such Borrowing, in which case as of such specific date); and (ii) no event has occurred and is continuing, or would result from such Borrowing or from the application of the proceeds therefrom, that constitutes a Default; and (b) the Administrative Agent shall have received such other approvals, authorizations, opinions, documents and information as any of the Appropriate Lenders through the Administrative Agent may reasonably request. SECTION 3.03. Determinations Under Section 3.01. For purposes of --------------------------------- determining compliance with the conditions specified in Section 3.01, each of the Lenders shall be deemed to have consented to, approved or accepted or to be satisfied with each document or other matter required thereunder to be consented to or approved by, or acceptable or satisfactory to, the Lenders unless an officer of the Administrative Agent responsible for the transactions contemplated by the Loan Documents shall have received notice from such Lender prior to the Effective Date specifying its objection thereto and, if such Lender has a Commitment on the Effective Date under any of the Facilities under which a Borrowing is to be made on such date, such Lender shall not have made available to the Administrative Agent such Lender's Pro Rata Share of such Borrowing. ARTICLE IV REPRESENTATIONS AND WARRANTIES SECTION 4.01. Representations and Warranties. Holdings and each of ------------------------------ the Borrowers represent and warrant as follows: (a) Each of the Loan Parties and each of their respective Subsidiaries (i) are corporations, partnerships or limited liability companies duly organized and validly existing under the laws of the jurisdictions of their respective organization and, in the case of each such Loan Party and each such Subsidiary organized under the laws of any state of the United States of America, are in good standing under the laws of such state and (ii) are duly qualified as foreign corporations, partnerships or limited liability companies and are in good standing in each other jurisdiction in which the ownership, lease or operation of their respective property and assets or the conduct of their respective businesses require them to so qualify or be licensed, except, solely in the case of this clause (ii), where the failure to so qualify or be licensed or to be in good standing, either individually or in the aggregate, could not reasonably be expected to have a Material Adverse Effect. Each of the Loan Parties and each of their respective Subsidiaries have all of the requisite power and authority, and the legal right, to own or lease and to operate all of the property and assets they purport to own, lease or operate and to conduct all of their respective 76 businesses as now conducted and as proposed to be conducted. Each of the Loan Parties has all of the requisite power and authority, and the legal right, to execute and deliver each of the Loan Documents and the Related Documents to which it is or is to be a party, to perform all of its Obligations hereunder and thereunder and to consummate the Transaction and all of the other transactions contemplated hereby and thereby. (b) Set forth on Schedule 4.01(b) hereto is a complete and accurate list of all of the Subsidiaries of Fox Kids, showing, as of the date of this Agreement, as to each such Subsidiary, the correct legal name thereof, the legal structure thereof, the jurisdiction of its organization, the number and type of each class of its Equity Interests authorized and the number outstanding, and the percentage of each such class of its Equity Interests outstanding on such date that are owned by any of the Loan Parties. All of the outstanding Equity Interests in Holdings are owned directly by Fox Kids, free and clear of all Liens (including, without limitation, preemptive or other similar rights of the holders thereof), except for the liens and security interests created under the Pledge and Assignment Agreement. All of the outstanding Equity Interests in each of the Borrowers are owned directly by Holdings, free and clear of all Liens (including, without limitation, preemptive or other similar rights of the holders thereof), except for the liens and security interests created under the Pledge and Assignment Agreement. Except as set forth on Schedule 4.01(b) hereto, all of the outstanding Equity Interests in each of the Subsidiaries of the Borrowers are owned directly or indirectly by one or more of the Loan Parties, free and clear of all Liens (including, without limitation, preemptive or other similar rights of the holders thereof), except for the liens and security interests created under the Collateral Documents. All of the outstanding Equity Interests in Holdings and each of its Subsidiaries have been validly issued and are fully paid and nonassessable. (c) The execution, delivery and performance by each of the Loan Parties of each of the Loan Documents and the Related Documents to which it is or is to be a party, and the consummation of the Transaction and the other transactions contemplated hereby and thereby, have been duly authorized by all necessary action (including, without limitation, all necessary shareholder, partner, member or other similar action) and do not: (i) contravene the Constitutive Documents of such Loan Party; (ii) violate any Requirement of Law; (iii) conflict with or result in the breach of, or constitute a default under, any loan agreement, indenture, mortgage, deed of trust, lease, instrument, contract or other agreement binding on or affecting such Loan Party, any of its Subsidiaries or any of their respective property or assets; or (iv) except for the Liens created under the Loan Documents, result in or require the creation or imposition of any Lien upon or with respect to any of the property or assets of such Loan Party or any of its Subsidiaries. Neither any of the Loan Parties nor any of their respective Subsidiaries is in violation of any Requirement of Law or in breach of any loan agreement, indenture, mortgage, deed of trust, lease, instrument, contract or other agreement referred to in the immediately preceding sentence, 77 the violation or breach of which, either individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect. (d) Each of the Loan Parties and each of their respective Subsidiaries own or possess all of the Governmental Authorizations that are necessary to own or lease and operate their respective property and assets and to conduct their respective businesses as now conducted and as proposed to be conducted, except where and to the extent that the failure to obtain or maintain in effect any such Governmental Authorization, either individually or in the aggregate, could not reasonably be expected to have a Material Adverse Effect. Neither any of the Loan Parties nor any of their respective Subsidiaries has received any notice relating to or threatening the revocation, termination, cancellation, denial, impairment or modification of any such Governmental Authorization, or is in violation or contravention of, or in default under, any such Governmental Authorization. No Governmental Authorization, and no consent, approval or authorization of, or notice to or filing with, or other action by, any other Person is required for: (i) the due execution, delivery, recordation, filing or performance by any of the Loan Parties of any of the Loan Documents or the Related Documents to which it is or is to be a party, or for the consummation of any aspect of the Transaction or the other transactions contemplated hereby or thereby; (ii) the grant by any of the Loan Parties of the Liens granted by it pursuant to the Collateral Documents; (iii) the perfection or maintenance of the Liens created under the Collateral Documents (including the first priority nature thereof); or (iv) the exercise by the Administrative Agent or any of the Lenders of its rights under the Loan Documents or the remedies in respect of the Collateral pursuant to the Collateral Documents; except for the Governmental Authorizations, and the consents, approvals, authorizations, notices, filings and other actions, described on Schedule 4.01(d) hereto. All of the Governmental Authorizations, and the consents, approvals, authorizations, notices, filings and other actions, described on Schedule 4.01(d) hereto have been or will have been duly obtained, taken, given or made on or prior to the Effective Date and are, or on the Effective Date will be, in full force and effect, or, if expressly provided for on Schedule 4.01(d) hereto, will be duly obtained, taken, given or made in accordance with the terms set forth therefor on Schedule 4.01(d) hereto and, thereafter, will be in full force and effect. All applicable waiting periods in connection with each aspect of the Transaction and the other transactions contemplated hereby and thereby have expired without any action having been taken by any competent authority restraining, preventing or imposing materially adverse conditions upon any aspect of the Transaction or the rights of any of the Loan Parties or their respective Subsidiaries freely to transfer or otherwise dispose of, or to create any Lien on, any property or assets now owned or hereafter acquired by any of them. (e) This Agreement has been, and each of the Notes, each of the other Loan Documents and each of the Related Documents when delivered hereunder will have been, duly executed and delivered by each of the Loan Parties intended to be a party thereto. This Agreement is, and each of the Notes, each of the other Loan Documents and each of the Related 78 Documents when delivered hereunder will be, the legal, valid and binding obligations of each of the Loan Parties intended to be a party thereto, enforceable against such Loan Party in accordance with their respective terms, except to the extent such enforceability may be limited by the effect of applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting the enforcement of creditors' rights generally. (f) The Consolidated balance sheet of FCN Holding and its Subsidiaries as of March 31, 1997, and the related Consolidated statements of operations and cash flows of FCN Holding and its Subsidiaries for the three-month period then ended, duly certified by a Responsible Officer of FCN Holding, copies of which have been furnished to each of the Lenders, fairly present (subject to normal year-end audit adjustments) the Consolidated financial condition of FCN Holding and its Subsidiaries as at such date and the Consolidated results of operations and cash flows of FCN Holding and its Subsidiaries for the period ended on such date. All of the Consolidated financial statements referred to above in this Section 4.01(f) have been prepared in accordance with generally accepted accounting principles applied consistently throughout the period covered thereby. (g) The Consolidated balance sheet of Saban and its Subsidiaries as of March 31, 1997, and the related Consolidated statements of operations and cash flows of Saban and its Subsidiaries for the three-month period then ended, duly certified by a Responsible Officer of Saban, copies of which have been furnished to each of the Lenders, fairly present (subject to normal year-end audit adjustments) the Consolidated financial condition of Saban and its Subsidiaries as at such date and the Consolidated results of operations and cash flows of Saban and its Subsidiaries for the period ended on such date. All of the Consolidated financial statements referred to above in this Section 4.01(g) have been prepared in accordance with generally accepted accounting principles applied consistently throughout the period covered thereby. (h) The Consolidated balance sheets of Pre-Merger IFE and its Subsidiaries as of December 31, 1995 and December 31, 1996, and the related Consolidated statements of liabilities, stockholders' equity and cash flows of Pre-Merger IFE and its Subsidiaries for the fiscal years of Pre-Merger IFE ended December 31, 1995 and December 31, 1996, in each case including the schedules and notes thereto and accompanied by an opinion of KPMG Peat Marwick LLP, the independent accountants of Pre-Merger IFE, and the Consolidated balance sheet of Pre-Merger IFE and its Subsidiaries as of June 30, 1997, and the related Consolidated statements of liabilities, stockholders' equity and cash flows of Pre-Merger IFE and its Subsidiaries for the six-month period then ended, duly certified by a Responsible Officer of Pre-Merger IFE, copies of all of which have been furnished to each of the Lenders, fairly present (subject, in the case of such balance sheet as of June 30, 1997 and such statements of liabilities, stockholders' equity and cash flows for the six-month period then ended, to normal year- end audit adjustments) the Consolidated financial condition of Pre-Merger IFE and its Subsidiaries as at such dates and the Consolidated results of operations and cash flows of Pre-Merger IFE and its Subsidiaries for the respective periods ended on such dates. All of the Consolidated financial statements referred to above in this Section 4.01(h), including the schedules and notes thereto, have been prepared in accordance with generally accepted accounting principles applied consistently throughout the respective periods covered thereby. 79 (i) The combined balance sheets of Fox Kids and its Subsidiaries as of June 30, 1996 and June 30, 1997, and the related combined statements of operations, stockholders' equity and cash flows of Fox Kids and its Subsidiaries for the eight-month period ended June 30, 1996 and the 12- month period ended June 30, 1997, respectively, in each case including the schedules and notes thereto and accompanied by an opinion of Ernst & Young LLP, the independent accountants of Fox Kids, copies of which have been furnished to each of the Lenders, fairly present the combined financial condition of Fox Kids and its Subsidiaries as at such dates and the combined results of operations and cash flows of Fox Kids and its Subsidiaries for the respective periods ended on such dates. All of the combined financial statements referred to above in this Section 4.01(i), including the schedules and notes thereto, have been prepared in accordance with generally accepted accounting principles applied consistently throughout the respective periods covered thereby. (j) The pro forma Consolidated balance sheet of Fox Kids and its Subsidiaries as of June 30, 1997, and the related pro forma Consolidated statements of operations and stockholders' equity of Fox Kids and its Subsidiaries for the 12-month period ended June 30, 1997, as set forth in the Final Offering Memorandum, copies of which have been furnished to each of the Lenders, fairly present the pro forma Consolidated financial condition of Fox Kids and its Subsidiaries as at such date and the pro forma Consolidated results of operations and cash flows of Fox Kids and its Subsidiaries for the period ended on such date, in each case after giving effect to the Transaction. (k) The forecasted Consolidated balance sheets, statements of operation and cash flow statements of Fox Kids and its Subsidiaries delivered to the Lenders pursuant to Section 3.01(i)(xv) hereof or Section 7(i)(iv) of the Fox Kids Guarantee were prepared in good faith on the basis of the assumptions stated therein, which assumptions were reasonable in the light of conditions existing at the time of delivery of such forecasts, and represented, at the time of delivery thereof to the Lenders, the Borrowers' reasonable estimates of their future financial performance (although the actual results during the periods covered by such forecasts may differ from the forecasted results). (l) No material adverse change has occurred in the business, condition (financial or otherwise), operations, performance or properties of Fox Kids and its Subsidiaries, taken as a whole, since December 31, 1996. (m) The Information Memorandum (as supplemented by the Final Offering Memorandum) and all of the other written information (other than financial projections and pro forma information) furnished by or on behalf of any of the Loan Parties or any of their respective Subsidiaries to the Administrative Agent or any of the Lenders in connection with the Loan Documents or the Related Documents or any aspect of the Transaction or any of the other transactions contemplated hereby or thereby does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made therein, in light of the circumstances in which any such statements were made, not misleading. (n) There is no action, suit, investigation, litigation, arbitration or proceeding pending or, to the best knowledge of Holdings and each of the Borrowers, threatened against or affecting any of the Loan Parties or any of their respective Subsidiaries or any of the property or assets 80 thereof in any court or before any arbitrator or by or before any Governmental Authority of any kind (i) that, either individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect or (ii) in which there is a reasonable likelihood of an adverse determination and which purports to affect the legality, validity, binding effect or enforceability of any aspect of the Transaction, any of the Loan Documents or the Related Documents or any of the other transactions contemplated thereby. (o) Each of the Loan Parties is the legal and beneficial owner of the Collateral purported to be owned thereby under the Collateral Documents, free and clear of all Liens, except for the liens and security interests created under the Loan Documents. The Collateral Documents create valid and perfected first priority liens on and security interests in the Collateral in favor of the Administrative Agent, for the benefit of the Secured Parties, securing the payment of the Secured Obligations. All of the Equity Interests in Holdings and its Subsidiaries that are purported to comprise part of the Collateral have been delivered to the Administrative Agent as required under the terms of the Collateral Documents, together with undated stock powers or other appropriate powers duly executed in blank; all filings and other actions necessary to perfect and protect the liens and security interests of the Administrative Agent in the Collateral have been duly made or taken and are in full force and effect or will be duly made or taken in accordance with the terms of the Loan Documents; and all filing fees and recording taxes have been paid in full. (p) Each of the Loan Parties and each of their respective Subsidiaries own or possess all of the licenses, permits, franchises, authorizations, consents and approvals, and own or have the legal right to use all of the patents, copyrights, service marks, trademarks and trade names (or other rights thereto), that are necessary to own or lease and operate their respective property and assets and to conduct their respective businesses as now conducted and as proposed to be conducted, without known conflict with the rights of any other Person. No action, suit, investigation, litigation, arbitration or proceeding is pending or, to the best knowledge of Holdings and each of the Borrowers, is threatened challenging the use by any of the Loan Parties or any of their respective Subsidiaries of any such license, permit, franchise, authorization, consent, approval, patent, copyright, service mark, trademark, trade name or other right, or the validity or effectiveness thereof, except for any such action, suit, investigation, litigation or proceeding that, either individually or in the aggregate, could not reasonably be expected to have a Material Adverse Effect. Except as described on Schedule 4.01(p) hereto: (i) no product of any of the Loan Parties or any of their respective Subsidiaries infringes in any material respect on any license, permit, franchise, authorization, consent, approval, patent, copyright, service mark, trademark, trade name or other right owned by any other Person; and (ii) there is no material violation by any Person of any right of any of the Loan Parties or any of their respective Subsidiaries with respect to any license, permit, franchise, authorization, consent, approval, patent, copyright, service mark, trademark, trade name or other right owned or used by any such Loan Party or any such Subsidiary. Neither the Administrative Agent nor any of the Lenders will, solely as a result of their execution, delivery or performance of this Agreement or any of the other Loan Documents, or 81 the making of Advances or maintaining their Commitments hereunder, be subject to the regulation or control of the FCC or any similar Governmental Authority. (q) None of the proceeds of any of the Advances will be used to acquire any Equity Interests in any Person of a class that is registered pursuant to Section 12 of the Exchange Act. (r) Neither Fox Kids nor any of its Subsidiaries is engaged in the business of extending credit for the purpose of purchasing or carrying any "margin stock" (within the meaning of Regulation G or U of the Board of Governors of the Federal Reserve System (12 CFR 207)). Following application of the proceeds of each Advance made on or after the Effective Date, not more than 25 percent of the value of the property and assets of any of the Borrowers, either individually or together with its Subsidiaries, taken as a whole, subject to the provisions of Section 5.02(a) or 5.02(d) or subject to any restriction contained in any agreement or instrument between any such Borrower and any of the Lenders or any Affiliate of any of the Lenders relating to Indebtedness and within the scope of Section 7.01(e), will be margin stock. (s) Neither any of the Loan Parties nor any of their respective Subsidiaries is an "investment company" or an "affiliated person" of, or "promoter" or "principal underwriter" for, an "investment company" (each as defined in the Investment Company Act of 1940, as amended). None of the making of any Advances or the application of the proceeds therefrom, the repayment of any of the Advances by any of the Borrowers, or the consummation of the Transaction or any of the other transactions contemplated hereby, will violate any provision of the Investment Company Act of 1940, as amended, or any rule, regulation or order of the Securities and Exchange Commission thereunder. (t) Holdings and its Subsidiaries, taken as a whole, is Solvent. Each of the Borrowers and its Subsidiaries, taken as a whole, is Solvent. (u) Neither any of the Loan Parties nor any of their respective Subsidiaries is a party to any loan agreement, indenture, mortgage, deed of trust, lease, instrument, contract or other agreements or is subject to any restriction in its Constitutive Documents or any other corporate, partnership, limited liability company or similar restriction that, in each case either individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect. (v) Neither the business nor the property or assets of any of the Loan Parties or any of their respective Subsidiaries have been affected by any fire, explosion, accident, strike, lockout or other labor dispute, drought, storm, hail, earthquake, embargo or other act of God or of the public enemy or other casualty (whether or not covered by insurance) that, either individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect. (w) There is (i) no unfair labor practice complaint pending or, to the best knowledge of Holdings and each of the Borrowers, threatened against any of the Loan Parties or any of their respective Subsidiaries by or before any Governmental Authority and no grievance or arbitration proceeding pending or, to the best knowledge of Holdings and each of the Borrowers, threatened against any of the Loan Parties or any of their respective Subsidiaries which arises out of or under any collective bargaining agreement, (ii) no strike, labor dispute, slowdown, stoppage or similar action or grievance pending or, to the best knowledge of Holdings and each of the Borrowers, threatened against any of the Loan Parties or any of their respective Subsidiaries and 82 (iii) to the best knowledge of Holdings and each of the Borrowers, no union representation question existing with respect to the employees of any of the Loan Parties or any of their respective Subsidiaries and no union organizing activity taking place with respect to any of the employees of any of them that, in the case of any or all of clauses (i), (ii) and (iii) of this Section 4.01(w), either individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect. (x) There exists no actual or threatened termination, cancellation or limitation of, or modification to or change in, the business relationship between (i) any of the Borrowers or any of their respective Subsidiaries, on the one hand, and any carrier, any customer or any group thereof, on the other hand, whose agreements with any such Borrower or any such Subsidiary are, or whose use of the property and assets or services thereof is, either individually or in the aggregate, material to the business or operations of Holdings and its Subsidiaries, taken as a whole, or (ii) any of the Borrowers or any of their respective Subsidiaries, on the one hand, and any material supplier thereof, on the other hand; and, to the best knowledge of Holdings and each of the Borrowers, there exists no present state of facts or circumstances that could reasonably be expected to give rise to or result in any such termination, cancellation, limitation, modification or change. (y) Set forth on Schedule 4.01(y) hereto is a complete and accurate list, as of the date of this Agreement, of all of the Plans and Multiemployer Plans of the Loan Parties and the ERISA Affiliates. No circumstances or conditions exist under any scheme or arrangement mandated by any Governmental Authority other than Governmental Authorities of the United States of America and the political subdivisions thereof that require employer or employee contributions or compliance by any of the Loan Parties or any of their respective Subsidiaries, and neither any of the Loan Parties nor any of their respective Subsidiaries maintains or contributes to any employee benefit plan that is not subject solely to the Requirements of Law of the United States of America or any political subdivision thereof, that, in any such case either individually or in the aggregate, could reasonably be expected to result in any material liability of any of the Loan Parties or any of their respective Subsidiaries. None of legal or beneficial owners of any of the Equity Interests in Fox Kids is a member of the "controlled group of corporations" (as defined in Treasury Regulations 1.414(b) and 1.414(c)) of any of the Loan Parties. (z) No ERISA Event has occurred or could reasonably be expected to occur with respect to any Plan that has resulted or could reasonably be expected to result in any material liability of any of the Loan Parties or any of the ERISA Affiliates. (aa) Schedule B (Actuarial Information) to the most recent annual report (form 5500 series) for each of the Plans, copies of which have been filed with the Internal Revenue Service and furnished to each of the Lenders, is complete and accurate and fairly presents the funding status of such Plan; and, since the date of such Schedule B, there has been no material adverse change in the funding status of such Plan. (bb) Neither any of the Loan Parties nor any of the ERISA Affiliates (i) has incurred or could reasonably be expected to incur any Withdrawal Liability to any Multiemployer Plan or (ii) has been notified by the sponsor of a Multiemployer Plan that such Multiemployer Plan is in reorganization or has been terminated, within the meaning of Title IV of ERISA, and no such 83 Multiemployer Plan could reasonably be expected to be in reorganization or to be terminated, within the meaning of Title IV of ERISA, that in any of the foregoing cases under this Section 4.01(bb), either individually or in the aggregate, could reasonably be expected to result in any material liability of any of the Loan Parties or any of the ERISA Affiliates. (cc) The operations and properties of each of the Loan Parties and each of their respective Subsidiaries comply in all material respects with all applicable Environmental Laws and Environmental Permits; all past noncompliance with such Environmental Laws and Environmental Permits has been resolved without any material ongoing obligations or costs; all Environmental Permits that are necessary for the operations or properties of any of the Loan Parties or any of their respective Subsidiaries have been obtained and are in full force and effect; and no circumstances exist that, either individually or in the aggregate, could reasonably be expected to (i) form the basis of an Environmental Action against any of the Loan Parties or any of their respective Subsidiaries or any of the properties thereof that, either individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect or (ii) cause any such property to be subject to any restrictions on ownership, occupancy, use or transferability under any Environmental Law that, either individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect. (dd) (i) None of the properties owned or operated by any of the Loan Parties or any of their respective Subsidiaries is listed or proposed for listing on the NPL or on the CERCLIS or any analogous foreign, state, provincial or local list or, to the best knowledge of Holdings and each of the Borrowers, is adjacent to any such property; and (ii) except as, either individually or in the aggregate, could not reasonably be expected to have a Material Adverse Effect, (A) there are no and never have been any underground or aboveground storage tanks or any surface impoundments, septic tanks, pits, sumps or lagoons in which Hazardous Materials are being or have been treated, stored or disposed of on any property owned or operated by any of the Loan Parties or any of their respective Subsidiaries or, to the best knowledge of Holdings and each of the Borrowers, on any property formerly owned or operated by any of the Loan Parties or any of their respective Subsidiaries, (B) there is no asbestos or asbestos- containing material on any property owned or operated by any of the Loan Parties or any of their respective Subsidiaries and (C) Hazardous Materials have not been released, discharged or disposed of on any property owned or operated by any of the Loan Parties or any of their respective Subsidiaries. (ee) Neither any of the Loan Parties nor any of their respective Subsidiaries is undertaking, and has not completed, either individually or together with other potentially responsible parties, any investigation or assessment or remedial or response action relating to any actual or threatened release, discharge or disposal of Hazardous Materials at any site, location or operation, either voluntarily or pursuant to the order of any Governmental Authority or the requirements of any Environmental Law. All Hazardous Materials generated, used, treated, handled or stored at, or transported to or from, any property owned or operated by any of the Loan Parties or any of their respective Subsidiaries have been disposed of in a manner that, either individually or in the aggregate, could not reasonably be expected to have a Material Adverse Effect. (ff) Each of the Loan Parties and each of their respective Subsidiaries have filed, have caused to be filed or have been included in all federal tax returns, reports and statements and all 84 other material tax returns, reports and statements (foreign, state, local and provincial) required to be filed and have paid all taxes, assessments, levies, fees and other charges shown thereon (or on any assessments received by any such Person or of which any such Person has been notified) to be due and payable, together with applicable interest and penalties, except for any such taxes, assessments, levies, fees and other charges the amount, applicability or validity of which is being contested in good faith and by appropriate proceedings diligently conducted and with respect to which such Loan Party or such Subsidiary, as the case may be, has established appropriate and adequate reserves in accordance with GAAP. Except as set forth on Schedule 4.01(ff) hereto, all of the tax returns, reports and statements referred to in the immediately preceding sentence have been prepared in good faith and are complete and accurate in all material respects for the Loan Parties and their Subsidiaries for the respective periods covered thereby. (gg) Set forth on Schedule 4.01(gg) hereto is a complete and accurate list, as of the date of this Agreement, of each Open Year of each of the Loan Parties and each of their respective Subsidiaries. There are no adjustments to (i) the federal income tax liability (including, without limitation, interest and penalties) of any of the Loan Parties or any of their respective Subsidiaries proposed in writing by the Internal Revenue Service with respect to Open Years or (ii) any foreign, state, local or provincial tax liability (including, without limitation, interest and penalties) of any of the Loan Parties or any of their respective Subsidiaries proposed in writing by any foreign, state, local or provincial taxation authority that, in the aggregate for subclauses (A) and (B) of this sentence, would exceed $5,000,000. No issues have been raised by the Internal Revenue Service in respect of Open Years or by any such foreign, state, local or provincial taxation authorities that, either individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect. (hh) Neither any of the Loan Parties nor any of their respective Subsidiaries has entered into an agreement or waiver or been requested to enter into an agreement or waiver extending any statute of limitations relating to the assessment, reassessment, payment or collection of taxes of such Loan Party or any such Subsidiary, or is aware of any circumstances that would cause the taxable years or other taxable periods of such Loan Party or any such Subsidiary to no longer be subject to the normally applicable statute of limitations, except that the taxable years of IFE ended December 31, 1992 and December 31, 1993 have been extended to June 30, 1998 due to an ongoing audit by the Internal Revenue Service of the taxable year of IFE ended December 31, 1992 and adjustments expected to be made in subsequent periods. Neither any of the Loan Parties nor any of their respective Subsidiaries has provided, with respect to itself or any property held by it, any consent under Section 341(f) of the Internal Revenue Code. (ii) As of June 30, 1997: (i) Fox Kids and its Subsidiaries did not have any net operating loss carryforwards for U.S. federal income tax purposes; (ii) FCN Holding and its Subsidiaries had net operating loss carryforwards for U.S. federal income tax purposes equal to at least $100,000 in the aggregate; (iii) Saban and its Subsidiaries did not have any net operating loss carryforwards for U.S. federal income tax purposes; and (iv) IFE and its Subsidiaries did not have any net operating loss carryforwards for U.S. federal income tax purposes. (jj) Set forth on Schedule 4.01(jj) hereto is a complete and accurate list, as of the date of this Agreement, of all of the Surviving Indebtedness, showing, as of such date, each of the Loan Parties and/or each of their respective Subsidiaries party thereto, the principal amount 85 outstanding thereunder, the interest rate thereon, the scheduled maturity date thereof and the amortization schedule, if any, therefor. (kk) Set forth on Schedule 4.01(kk) hereto is a complete and accurate list, as of the date of this Agreement, of all of the Investments (other than Cash Equivalents) held by any of the Loan Parties or any of their respective Subsidiaries, showing, as of such date, the amount, the obligor or issuer thereof and the maturity, if any, thereof. (ll) All of the Subsidiaries of Fox Kids constitute "Restricted Subsidiaries" (as defined in the Senior Notes Indentures) on the Effective Date for all purposes of the Senior Notes Documents other than the Subsidiaries of IFE that are intended, and are expressly permitted, to be sold, transferred or otherwise disposed of pursuant to Section 5.02(d)(vii). ARTICLE V COVENANTS OF HOLDINGS AND THE BORROWERS SECTION 5.01. Affirmative Covenants. So long as any of the Advances --------------------- shall remain unpaid or any of the Lenders shall have any Commitment hereunder, Holdings and each of the Borrowers will, at all times (unless a specific time period is specified herein): (a) Compliance with Laws, Maintenance of Governmental Authorizations, ----------------------------------------------------------------- Etc. (i) Comply, and cause each of its Subsidiaries to comply, in all --- material respects, with all applicable Requirements of Law, such compliance to include, without limitation, compliance with ERISA and the Racketeer Influenced and Corrupt Organizations Chapter of the Organized Crime Control Act of 1970, and (ii) except as provided in Section 5.01(e), obtain and maintain in effect, and cause each of its Subsidiaries to obtain and maintain in effect, all Governmental Authorizations that are necessary (A) to own or lease and operate their respective property and assets and to conduct their respective businesses as now conducted and as proposed to be conducted, except where and to the extent that the failure to obtain or maintain in effect any such Governmental Authorization, either individually or in the aggregate, could not reasonably be expected to have a Material Adverse Effect, or (B) for the due execution, delivery, recordation, filing or performance by Holdings or any of its Subsidiaries of any of the Loan Documents or the Related Documents to which it is or is to be a party, or for the consummation of any aspect of the Transaction or any of the other transactions contemplated hereby and thereby, except in the case of this subclause (ii)(B) for the Governmental Authorizations, and the consents, approvals, authorizations, notices, filings and other actions, described on Schedule 4.01(d) hereto as otherwise being required to be duly obtained, taken, given or made in accordance with the terms set forth therefor on Schedule 4.01(d) hereto. This Section 5.01(a) shall not apply to compliance with Environmental Laws or Environmental Permits (which is the subject of Section 5.01(c)). (b) Payment of Taxes, Etc. Pay and discharge, and cause each of its --------------------- Subsidiaries to pay and discharge, to the extent due and payable and before the same shall become delinquent, (i) all taxes, assessments, reassessments, levies and other governmental charges imposed upon it or upon its property, assets, income or franchises and (ii) all lawful claims that, if unpaid, might by law become a Lien upon its property and assets or any part thereof; provided, however, 86 that neither Holdings nor any of its Subsidiaries shall be required to pay or discharge any such tax, assessment, reassessment, levy, charge or claim the amount, applicability or validity of which is being contested in good faith and by proper proceedings diligently conducted and as to which appropriate and adequate reserves are being maintained in accordance with GAAP, unless and until (i) such contest could subject Holdings or any of its Subsidiaries to any criminal penalty or liability or the Administrative Agent or any of the Lenders to any criminal penalty or liability or (except for nonmaterial fines for which the Administrative Agent or such Lender is fully indemnified under Section 9.04) any civil penalty or liability or (ii) any Lien resulting therefrom attaches to any of the Collateral or a material portion of its other property and assets and enforcement, collection, execution, levy or foreclosure proceedings shall have been commenced with respect thereto. (c) Compliance with Environmental Laws. (i) Comply (and require all ---------------------------------- lessees and other Persons operating or occupying any of its properties to comply), and cause each of its Subsidiaries to comply (and to require all lessees and other Persons operating or occupying any of its properties to comply), in all material respects, with all of the applicable Environmental Laws and the Environmental Permits applicable to such Person or its operations or properties; (ii) obtain and renew, and cause each of its Subsidiaries to obtain and renew, all of the Environmental Permits necessary for the ownership or operation of their respective properties or the conduct of their respective businesses as now conducted and as proposed to be conducted; and (iii) conduct, and cause each of its Subsidiaries to conduct, any investigation, study, sampling or testing, and undertake, and cause each of its Subsidiaries to undertake, any cleanup, removal, remedial or other action, necessary to remove and clean up all of the Hazardous Materials from any of its properties in accordance with the requirements of all applicable Environmental Laws, except, in the case of clause (ii) or (iii) of this Section 5.01(c), where the failure to obtain or renew any such Environmental Permit, to conduct any such investigation, study, sampling or testing or to undertake any such cleanup, removal, remedial or other action, either individually or in the aggregate, could not reasonably be expected (A) to have a Material Adverse Effect or (B) to subject Holdings or any of its Subsidiaries to any criminal penalty or liability or the Administrative Agent or any of the Lenders to any criminal penalty or liability or (except for nonmaterial fines for which the Administrative Agent or such Lender is fully indemnified under Section 9.04) any civil penalty or liability; provided, however, that neither Holdings nor any of its Subsidiaries shall be required to undertake any such cleanup, removal, remedial or other action otherwise required under this Section 5.01(c) to the extent that the amount, applicability or validity thereof is being contested in good faith and by proper proceedings diligently conducted and appropriate and adequate reserves are being maintained in accordance with GAAP with respect to such circumstances. (d) Maintenance of Insurance. Maintain, and cause each of its ------------------------ Subsidiaries to maintain, insurance for their respective properties, assets and businesses (i) with insurance companies or associations that have, or that have directly reinsured such insurance with insurance companies or associations that have, an A.M. Best Company claims paying ability rating of at least "A-" (or the then equivalent rating) and (ii) of such types (including, without limitation, insurance against theft and fraud and against loss or damage by fire, explosion or hazard of or to property, errors and omissions insurance and insurance against liability for defamation, libel, slander and invasion of privacy), in such amounts and with such deductibles, covering such casualties and contingencies and otherwise on such terms as are either (A) at least as favorable as those usually carried by companies of established reputations engaged in similar businesses and 87 owning similar properties and assets in the same general areas in which Holdings or the applicable Subsidiary of Holdings operates or (B) recommended by Alexander & Alexander or another insurance broker of recognized national standing and, in any case, as may otherwise be required by applicable Requirements of Law; provided, however, that Holdings and its Subsidiaries may effect workers' compensation insurance or similar coverage with respect to their respective operations in any particular jurisdiction through an insurance fund operated by such jurisdiction or by meeting the self-insurance requirements of such jurisdiction so long as Holdings or such Subsidiary establishes and maintains appropriate and adequate reserves therefor in accordance with GAAP. (e) Preservation of Corporate Existence, Etc. Preserve and maintain, ---------------------------------------- and cause each of its Subsidiaries to preserve and maintain, its existence, legal structure, organization, rights (statutory and pursuant to its Constitutive Documents), permits, licenses, approvals, privileges and franchises; provided, however, that Holdings and its Subsidiaries (i) may consummate any merger or consolidation otherwise expressly permitted under Section 5.02(c), (ii) may wind up, liquidate or dissolve any of their respective inactive Subsidiaries to the extent otherwise expressly permitted under Section 5.02(d)(iv) and (iii) may amend, supplement or otherwise modify their rights under their respective Constitutive Documents to the extent otherwise expressly permitted under Section 5.02(l); and provided further, however, that neither Holdings nor any of its Subsidiaries shall be required to preserve any right, permit, license, approval, privilege or franchise if the board of directors (or persons performing similar functions) of Holdings or such Subsidiary shall determine in good faith that the preservation thereof is no longer desirable in the conduct of the business of Holdings or such Subsidiary, as the case may be, and that the loss thereof is not disadvantageous in any material respect to Holdings, such Subsidiary or the Lenders or, solely in the case of any such permit, license or approval, that the loss thereof, either individually or in the aggregate, could not reasonably be expected to have a Material Adverse Effect. (f) Visitation Rights. At any reasonable time and from time to time, ----------------- upon reasonable notice, permit the Administrative Agent or any of the Lenders, or any agents or representatives thereof (so long as such agent or representative is or agrees to be bound by the provisions of Section 9.09), to examine and make copies of and abstracts from the records and books of account of, and to visit during normal business hours the properties of, Holdings or any of its Subsidiaries, and to discuss the affairs, finances and accounts of Holdings and/or any of its Subsidiaries with any of their officers or directors and with their independent public accountants. (g) Keeping of Books. Keep, and cause each of its Subsidiaries to ---------------- keep, proper books of record and account in which full and accurate entries shall be made of all of the financial transactions and the property, assets and businesses of Holdings and each of its Subsidiaries (including, without limitation, the establishment and maintenance of adequate and appropriate reserves) in accordance with all applicable Requirements of Law and with GAAP. (h) Maintenance of Properties, Etc. (i) Maintain and preserve, and ------------------------------ cause each of its Subsidiaries to maintain and preserve, all of its properties that are used or useful in the conduct of its business in good working order and condition, ordinary wear and tear and casualty and condemnation excepted, and (ii) make, and cause each of its Subsidiaries to make, from time to time, all necessary repairs, renewals, additions, replacements, betterments and improvements of [*] CONFIDENTIAL TREATMENT REQUESTED 88 such properties in order to permit the business and activities carried on in connection therewith to be properly conducted at all times. (i) Compliance with Terms of Leaseholds. (i) Make all payments and ----------------------------------- otherwise perform all obligations in respect of all leases of real property to which any of the Borrowers or any of their respective Subsidiaries is a party, keep such leases in full force and effect and not allow such leases to lapse or to be terminated or any rights to renew such leases to be forfeited or cancelled, in each case except to the extent that, in the reasonable business judgment of the Borrower or the Subsidiary of any of the Borrowers that is the lessee thereof, it is in the best interest of such Borrower or such Subsidiary, as the case may be, to allow or to cause such nonperformance, lapse, termination, forfeiture or cancellation, and such nonperformance, lapse, termination, forfeiture or cancellation, either individually or in the aggregate, could not reasonably be expected to have a Material Adverse Effect, and (ii) promptly notify the Administrative Agent of (A) any default by any party with respect to any such lease that could impair the interests of any of the Loan Parties or any of their Subsidiaries therein in any material manner or the rights or interests of the Administrative Agent or any of the Lenders in any manner, and cooperate with the Administrative Agent to cure any such default, and (B) any material nonperformance, or any lapse, termination, forfeiture or cancellation of any lease otherwise permitted to occur under clause (i) of this Section 5.01(i), and, in respect of each of the foregoing provisions of this Section 5.01(i), cause each of its Subsidiaries to do so. (j) Transactions with Affiliates. [*] ---------------------------- [*] [*] [*] [*] [*] [*] CONFIDENTIAL TREATMENT REQUESTED 89 [*] [*] (k) Further Assurances. Promptly upon the request of the ------------------ Administrative Agent, or any of the Lenders through the Administrative Agent, at any time and from time to time: (i) correct, and cause each of its Subsidiaries to correct, any defect or error that may be discovered in any of the Loan Documents or in the execution, acknowledgment, filing or recordation thereof; and (ii) do, execute, acknowledge, deliver, record, rerecord, file, refile, register and reregister, and cause each of its Subsidiaries promptly to do, execute, acknowledge, deliver, record, rerecord, file, refile, register and reregister, any and all further acts, conveyances, pledge agreements, assignments, financing statements and continuations thereof, termination statements, notices of assignment, transfers, certificates, assurances and other instruments as the Administrative Agent, or any of the Lenders through the Administrative Agent, may reasonably require from time to time in order to (A) carry out more effectively the purposes of this Agreement, the Notes or any of the other Loan Documents, (B) subject any of the property, assets, rights or interests of any of the Loan Parties or any of their respective Subsidiaries included or intended to be included in the Collateral to the Liens created or now or hereafter intended to be created under any of the Collateral Documents, (C) perfect and maintain the validity, effectiveness and priority of any of the Collateral Documents or any of the Liens created or intended to be created thereunder and (D) assure, convey, grant, assign, transfer, preserve, protect and confirm more effectively to the Administrative Agent and the other Secured Parties the rights granted or now or hereafter intended to be granted to the Administrative Agent and the other Secured Parties under any of the Loan Documents, or under any of the other instruments executed in connection with any such Loan Document. SECTION 5.02. Negative Covenants. So long as any of the Advances ------------------ shall remain unpaid or any of the Lenders shall have any Commitment hereunder, neither Holdings nor any of the Borrowers will, at any time: (a) Liens, Etc. [*] ---------- [*] CONFIDENTIAL TREATMENT REQUESTED 90 [*] [*] [*] [*] [*] [*] [*] [*] CONFIDENTIAL TREATMENT REQUESTED 91 [*] [*] [*] [*] [*] [*] CONFIDENTIAL TREATMENT REQUESTED 92 [*] [*] [*] [*] [*] [*] CONFIDENTIAL TREATMENT REQUESTED 93 (b) Indebtedness. [*] ------------ [*] [*] [*] [*] [*] [*] [*] [*] [*] CONFIDENTIAL TREATMENT REQUESTED 94 [*] [*] [*] [*] [*] [*] [*] [*] CONFIDENTIAL TREATMENT REQUESTED 95 [*] [*] [*] [*] [*] [*] CONFIDENTIAL TREATMENT REQUESTED 96 (N) [*] (c) Mergers, Etc. Merge into or consolidate with any Person or permit ------------ any Person to merge into or consolidate with it, or permit any of its Subsidiaries to do so, except that: (i) any of the Borrowers may merge into or consolidate with any of the other Borrowers; (ii) any of the Restricted Subsidiaries may merge into or consolidate with any of the Borrowers; provided that such Borrower is the surviving corporation; (iii) any of the Subsidiaries of the Borrowers may merge into or consolidate with any of the Restricted Subsidiaries; provided that the Person formed by such merger or consolidation is a Restricted Subsidiary; (iv) any of the Unrestricted Subsidiaries may merge into or consolidate with any of the other Unrestricted Subsidiaries; and (v) any of the Subsidiaries of the Borrowers may merge into or consolidate with any Person; provided that (A) if such Subsidiary is a Restricted Subsidiary, the Person formed by such merger or consolidation shall be a Restricted Subsidiary, (B) if such Subsidiary is a non-wholly owned Domestic Subsidiary, the Person formed by such merger or consolidation shall be a Domestic Subsidiary and (C) if such Subsidiary is a [*] CONFIDENTIAL TREATMENT REQUESTED 97 Foreign Subsidiary, the Person formed by such merger or consolidation shall be a Subsidiary of Fox Kids; and provided further that the Person into which or with which such Subsidiary is merging or consolidating (1) shall be engaged in one or more of the existing principal lines of business of the Borrowers and their Subsidiaries, considered as a whole, in the ordinary course and (2) shall not have any material contingent liabilities (as determined in good faith by the board of directors (or persons performing similar functions) of such Subsidiary). In all cases under this Section 5.02(c), (1) such merger or consolidation shall be effected in compliance with all applicable Requirements of Law, (2) all Governmental Authorizations, and all consents, approvals and authorizations of, notices and filings to or with, and other actions by, any other Person necessary in connection with such merger or consolidation shall have been obtained or made, (3) the Consolidated Net Worth of the Borrower or the Subsidiary thereof that is the surviving entity of such merger shall, after giving pro forma effect to such merger or consolidation, be at least equal to the Consolidated Net Worth of such Borrower or such Subsidiary immediately prior to giving effect thereto, (4) (x) immediately before and immediately after giving pro forma effect to such merger or consolidation, no Default shall have occurred and be continuing and (y) immediately after giving effect to such merger or consolidation, Fox Kids and its Subsidiaries shall be in pro forma compliance with all of the covenants set forth in Section 5.04, such compliance to be determined on the basis of the Consolidated financial statements of Fox Kids and its Subsidiaries or Holdings and its Subsidiaries, as applicable, most recently delivered to the Lenders pursuant to Section 7(i)(i) or 7(i)(ii) of the Fox Kids Guarantee or Section 5.03(b) or 5.03(c) hereof, respectively, as though such merger or consolidation had been consummated on the first day of the fiscal period covered thereby, and (5) one of the Borrowers shall notify the Administrative Agent of the proposed merger or consolidation at least ten Business Days prior to effecting such merger or consolidation and shall deliver to the Administrative Agent, on behalf of the Lenders, at the time such notice is delivered, a certificate of a Responsible Officer of such Borrower, in form and substance reasonably satisfactory to the Administrative Agent, certifying that all of the requirements set forth in subclauses (1), (2), (3) and (4) of this paragraph have been satisfied and, in the case of any merger or consolidation proposed to be effected pursuant to clause (v) of this Section 5.02(c), that all of the matters described in the provisos to such clause (v) have been satisfied and, in any event, including a schedule that sets forth in reasonable detail all of the computations used by such Borrower in determining its compliance with such requirements. (d) Sales, Etc. of Assets. [*] --------------------- [*] [*] CONFIDENTIAL TREATMENT REQUESTED 98 [*] [*] [*] [*] [*] [*] [*] CONFIDENTIAL TREATMENT REQUESTED 99 [*] [*] [*] [*] [*] [*] [*] [*] [*] CONFIDENTIAL TREATMENT REQUESTED 100 [*] [*] [*] [*] [*] [*] [*] [*] [*] CONFIDENTIAL TREATMENT REQUESTED 101 [*] [*] [*] [*] [*] [*] [*] CONFIDENTIAL TREATMENT REQUESTED 102 (e) Investments in Other Persons. [*] ---------------------------- [*] [*] [*] [*] [*] [*] [*] [*] [*] CONFIDENTIAL TREATMENT REQUESTED 103 [*] [*] [*] [*] [*] [*] [*] [*] CONFIDENTIAL TREATMENT REQUESTED 104 [*] [*] (f) Dividends, Repurchases, Etc. Declare or pay any dividends on, or --------------------------- purchase, redeem, retire, defease or otherwise acquire for value, any of its Equity Interests, whether now or hereafter outstanding, return any capital to its stockholders, partners or members (or the equivalent persons thereof) as such, make any distribution of property, assets, Equity Interests, obligations or securities to its stockholders, partners or members (or the equivalent persons thereof) as such, or issue or sell any of its Equity Interests, or permit any of its Subsidiaries to do any of the foregoing, or permit any of its Subsidiaries to purchase, redeem, retire, defease or otherwise acquire for value any Equity Interests in Holdings or any of the Borrowers, or to issue or sell any of its Equity Interests in order to acquire any such Equity Interests, except that, so long as no Default shall have occurred and be continuing at the time of any action described in clause (ii), (iii), (iv)(A), (iv)(C), (v), (vi), (vii) or (viii) of this Section 5.02(f) or shall occur as a result thereof: (i) Holdings or any of its Subsidiaries may declare and make dividends and other distributions payable only in shares of its common stock (or the equivalent Equity Interests thereto); provided that such shares of common stock (or equivalent Equity Interests) shall, to the extent required under the terms of the applicable Collateral Documents, be pledged as Collateral thereunder to the Administrative Agent, on behalf of the Secured Parties, promptly following the issuance thereof; [*] [*] [*] [*] CONFIDENTIAL TREATMENT REQUESTED 105 [*] [*] [*] [*] [*] (iv) (A) any of the Subsidiaries of Holdings may declare and make dividends and distributions to Holdings to the extent necessary from time to time in order for Holdings (1) to pay administrative and operating expenses incurred thereby in the ordinary course of business or (2) to dividend or otherwise distribute cash to Fox Kids [*] CONFIDENTIAL TREATMENT REQUESTED 106 pursuant to clause (ii) or (iii) of this Section 5.02(f), (B) any of the Subsidiaries of Holdings may declare and make dividends and distributions to any of the Borrowers or any of the Restricted Subsidiaries and (C) any of the Unrestricted Subsidiaries may declare and make dividends and distributions to any of the other Unrestricted Subsidiaries; (v) any of the non-wholly owned Subsidiaries of Holdings may declare and make dividends and distributions, and may issue and sell additional Equity Interests therein, to its shareholders, partners or members (or the equivalent persons thereof) generally so long as each of the Loan Parties and/or each of their respective Subsidiaries that own any of the Equity Interests in such non-wholly owned Subsidiary receive at least their respective proportionate shares of any such dividend, distribution or issuance of Equity Interests (based upon their relative holdings of the Equity Interests therein and taking into account the relative preferences, if any, of the various classes of the Equity Interests therein); [*] [*] [*] [*] [*] (g) Prepayments, Etc. of Indebtedness. (i) Prepay, redeem, purchase, --------------------------------- defease or otherwise satisfy prior to the scheduled maturity thereof in any manner, or make any payment in violation of any subordination terms of, any Indebtedness other than: [*] CONFIDENTIAL TREATMENT REQUESTED 107 [*] [*] [*] [*] [*] [*] [*] (h) Negative Pledge. Enter into or suffer to exist, or permit any of --------------- its Subsidiaries to enter into or suffer to exist, any agreement prohibiting or conditioning the creation or assumption of any Lien upon any of its property or assets other than: (i) any such agreement with or in favor of the Secured Parties or the Administrative Agent, on behalf of the Secured Parties; (ii) any such agreement with or in favor of the holders of the Senior Notes or either of the trustees for the Senior Notes, on behalf of the holders thereof, in each case as such agreement is in effect under the Senior Notes Indentures on the date of this Guarantee; (iii) in connection with (A) any Surviving Indebtedness to the extent such agreement is in effect on the date of this Agreement, (B) any Indebtedness otherwise 108 permitted to be incurred under Section 5.02(b)(iii)(N) to the extent such agreement is on terms that are no less favorable to Fox Kids or any of its Subsidiaries or the Administrative Agent or the Lenders than the terms in effect for the Indebtedness being refunded or refinanced immediately prior to effecting such refunding or refinancing and (C) any Indebtedness outstanding on the date any Person first becomes a Subsidiary of any of the Borrowers; provided that such agreement was not created in contemplation of the acquisition of such Person and does not extend to or cover any property or assets other than property and assets of the Person becoming such Subsidiary; (iv) any such agreement prohibiting other encumbrances on specific property and assets of any of the Borrowers or any of their respective Subsidiaries, which agreement secures the payment of Indebtedness incurred solely to acquire, construct or improve such property or assets or to finance the purchase price therefor and which Indebtedness is otherwise expressly permitted to be incurred under the terms of this Agreement; (v) any agreement setting forth customary restrictions on the subletting, assignment or transfer of any property or asset that is a lease, license, conveyance or contract of similar property or assets; and (vi) any restriction or encumbrance imposed pursuant to an agreement that has been entered into by Holdings or any of its Subsidiaries for the sale, lease, transfer or other disposition of any of its property or assets so long as such sale, lease, transfer or other disposition is otherwise expressly permitted to be made under Section 5.02(d). (i) Dividends and Other Payment Restrictions Affecting Subsidiaries. --------------------------------------------------------------- Enter into, create, assume or otherwise suffer to exist or become effective, or permit any of its Subsidiaries to enter into, create, assume or otherwise suffer to exist or become effective, directly or indirectly, any encumbrance or restriction of any kind on the ability of any of its Subsidiaries (i) to pay dividends or to make any other distributions on any of the Equity Interests in such Subsidiary owned or otherwise held by Holdings or any of its Subsidiaries, (ii) to pay or prepay or to subordinate any Indebtedness owed to Fox Kids or any of its Subsidiaries, (iii) to make loans or advances to Fox Kids or any of its Subsidiaries or (iv) to transfer any of its property or assets to Fox Kids or any of its Subsidiaries; provided, however, that nothing in any of clauses (i) through (iv) of this Section 5.02(i) shall prohibit or restrict: (A) this Agreement and the other Loan Documents; (B) any agreements in effect on the date of this Agreement and described on Schedule 5.02(i) hereto; (C) any applicable law, rule or regulation (including, without limitation, applicable currency control laws and applicable state corporate statutes restricting the payment of dividends in certain circumstances); [*] CONFIDENTIAL TREATMENT REQUESTED 109 (D) in the case of clause (iv) of this Section 5.02(i), any agreement setting forth customary restrictions on the subletting, assignment or transfer of any property or asset that is a lease, license, conveyance or contract of similar property or assets; (E) in the case of clause (iv) of this Section 5.02(i), any agreement with the holder of a Lien otherwise permitted to exist under Section 5.02(a)(ii)(D) or 5.02(a)(ii)(E) restricting on customary terms the transfer of any property or assets subject thereto; (F) any agreement evidencing Indebtedness outstanding on the date a Person first becomes a Subsidiary of any of the Borrowers; provided that such agreement was not created in contemplation of the acquisition of such Person by such Borrower and does not extend to or cover any property or assets other than the property or assets of the Person becoming such Subsidiary; and (G) any agreement evidencing or setting forth the terms of any refunding or refinancing Indebtedness otherwise permitted to be incurred under Section 5.02(b)(iii)(N) that contains any such restrictions to the extent such restrictions are no less favorable to Fox Kids or any of its Subsidiaries or the Administrative Agent or the Lenders than the terms in effect in the Indebtedness being so refunded or refinanced immediately prior to effecting such refunding or refinancing. (j) New Subsidiaries. Create, organize, incorporate or acquire any ---------------- Subsidiary other than a Special Purpose Vehicle (any such newly created, organized, incorporated or acquired Subsidiary other than a Special Purpose Vehicle being a "NEW SUBSIDIARY"), or permit any of its Subsidiaries to create, organize, incorporate or acquire any New Subsidiary, unless: (i) the Administrative Agent shall have approved the legal structure and capitalization of such New Subsidiary, such approval not to be unreasonably withheld or delayed; (ii) such New Subsidiary shall execute and deliver to the Administrative Agent, [*] [*] CONFIDENTIAL TREATMENT REQUESTED 110 [*] (iii) if such New Subsidiary constitutes (or is required or intended to constitute) a Restricted Subsidiary, such New Subsidiary and the owners of all of the Equity Interests therein shall have taken or shall take all of the other actions that may be necessary or that the Administrative Agent may reasonably deem desirable in order (A) to perfect and protect any Liens granted under the Collateral Documents and the Pledge Agreement Supplement and, if applicable, the other pledge agreements, assignment agreements (or other similar documents) referred to in clause (ii) of this Section 5.02(j) and (B) to enable the Administrative Agent and the Lenders to exercise and enforce their rights and remedies under the Loan Documents; (iv) if such New Subsidiary constitutes an Unrestricted Subsidiary, such New Subsidiary and each of the Borrowers and the Restricted Subsidiaries that own any of the Equity Interests therein shall have taken or shall take all of the other actions that may be necessary or that the Administrative Agent may reasonably deem desirable in order to perfect and protect any Liens granted or intended to be granted under the Collateral Documents in (A) if such New Subsidiary is not a Foreign Corporation, all of the Equity Interests in such New Subsidiary that are owned or otherwise held by, and all of the Indebtedness of such New Subsidiary owing from time to time to, Fox Kids, Holdings, any of the Borrowers or any of the Restricted Subsidiaries and (B) if such New Subsidiary is a Foreign Corporation, 66% of the Equity Interests in such New Subsidiary entitled to vote (within the meaning of Treasury Regulation Section 1.956-2(c)(2) promulgated under the Internal Revenue Code) (the "VOTING EQUITY INTERESTS") (on a fully diluted basis) or, if less, all of the Voting Equity Interests in such New Subsidiary owned by Fox Kids, Holdings, the Borrowers and/or the Restricted Subsidiaries, and all of the Equity Interests in such New Subsidiary not entitled to vote (within the meaning of Treasury Regulation Section 1.956-2(c)(2) promulgated under the Internal Revenue Code) now or hereafter owned by Fox Kids, Holdings, the Borrowers and/or the Restricted Subsidiaries; provided, however, that, if, as a result of any changes in the tax laws of the United States of America after the date of this Agreement, the pledge by any of the Loan Parties or any of their respective wholly owned Subsidiaries of any additional Equity Interests in any such Foreign Corporation to the Administrative Agent, on behalf of itself and the other Secured Parties, would not result in an increase in the aggregate net consolidated tax liabilities of Fox Kids and its Subsidiaries, then, promptly after the changes in such laws, all such additional Equity Interests shall be pledged to the Administrative Agent, on behalf of the Secured Parties, pursuant to the terms and conditions of the Collateral Documents and/or one or more additional pledge agreements, assignment agreements (or other similar documents), in form and substance reasonably acceptable to the Lenders; and (v) upon the reasonable request of the Administrative Agent, signed copies of one or more favorable opinions of special and appropriate local and/or foreign counsel for such New Subsidiary and, if appropriate, counsel for each of the owners of the Equity Interests therein as the Administrative Agent shall reasonably request, addressed to the 111 Administrative Agent, on behalf of the Secured Parties, and reasonably acceptable to the Administrative Agent and each of the other Secured Parties, as to the Guarantee Supplement, the Pledge Agreement Supplement and, if applicable, the other pledge agreements, assignment agreements (or other similar documents) referred to in clause (ii) of this Section 5.02(j) being the legal, valid and binding obligations of such New Subsidiary or such owners of the Equity Interests therein, as the case may be, enforceable against such New Subsidiary or each such owner in accordance with their respective terms, as to the creation, perfection and priority of the liens and security interests created or purported to be created therein, as to the choice of New York law being recognized in the courts of the jurisdiction in which such New Subsidiary is organized and as such other matters as the Administrative Agent, or any of the Lenders through the Administrative Agent, may reasonably request. (k) Change in Nature of Business. Make, or permit any of its ---------------------------- Subsidiaries to make, any change in the nature of its business that would cause Holdings and its Subsidiaries, considered as a whole, to cease to be primarily engaged in the businesses and activities they are engaged in on the date of this Agreement. (l) Amendments to Constitutive Documents. Amend, or permit any of its ------------------------------------ Subsidiaries to amend, its Constitutive Documents, except that Holdings or any of its Subsidiaries may amend its bylaws (or other similar organizational documents) in such a manner as, either individually or in the aggregate, could not reasonably be expected to have a Material Adverse Effect; provided that copies of any such amendment to the bylaws (or other similar organizational document) of Holdings or any such Subsidiary shall be delivered to the Administrative Agent at least ten Business Days prior to the date on which such amendments are intended to become effective. (m) Accounting Changes, Etc. Make or permit, or permit any of its ----------------------- Subsidiaries to make or permit, any change in (i) its accounting policies or reporting practices, except as required by applicable Requirements of Law or by GAAP, or (ii) its Fiscal Year. (n) Partnerships, Etc. Become a general partner in any general or ----------------- limited partnership or joint venture, or permit any of its Subsidiaries to do so, other than any Subsidiary the sole assets of which consist of its interest in such partnership or joint venture. (o) Speculative Transactions. Engage, or permit any of its ------------------------ Subsidiaries to engage, in any transaction involving commodity options or futures contracts or any similar speculative transactions. SECTION 5.03. Reporting Requirements. So long as any of the Advances ---------------------- shall remain unpaid or any of the Lenders shall have any Commitment hereunder, Holdings and the Borrowers will furnish to the Lenders: (a) Default Notices. As soon as possible and in any event within --------------- three Business Days after the occurrence of each Default or any event, development or occurrence that, either individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect 112 continuing on the date of such statement, a statement of a Responsible Officer of such Borrower setting forth the details of such Default, event, development or occurrence (including, without limitation, the anticipated effect thereof) and the action that Holdings and the Borrowers (or any of them) have taken and/or propose to take with respect thereto. (b) Quarterly Financials. As soon as available and in any event -------------------- within 60 days after the end of each of the first three Fiscal Quarters of each Fiscal Year, a Consolidated balance sheet of Holdings and its Subsidiaries as of the end of such Fiscal Quarter and Consolidated statements of operations, stockholders' equity and cash flows of Holdings and its Subsidiaries for the period commencing at the end of the previous Fiscal Quarter and ending with the end of such Fiscal Quarter and for the period commencing at the end of the previous Fiscal Year and ending with the end of such Fiscal Quarter, setting forth in comparative form for each Fiscal Quarter occurring after the Fiscal Quarter ending June 30, 1998, in the case of each such Consolidated balance sheet, the corresponding figures as of the last day of the corresponding period in the immediately preceding Fiscal Year from the Consolidated balance sheet of Holdings and its Subsidiaries for such corresponding period and, in the case of each such Consolidated statement of operations, stockholders' equity or cash flows, the corresponding figures for the corresponding period in the immediately preceding Fiscal Year, all in reasonable detail. (c) Annual Financials. As soon as available and in any event within ----------------- 120 days after the end of each Fiscal Year, (i) a copy of the annual audit report for such Fiscal Year for Holdings and its Subsidiaries, including therein the Consolidated balance sheet of Holdings and its Subsidiaries as of the end of such Fiscal Year and Consolidated statements of operations, stockholders' equity and cash flows of Holdings and its Subsidiaries for such Fiscal Year, accompanied by an unqualified opinion or an opinion otherwise acceptable to the Required Lenders of Ernst & Young LLP or other independent public accountants of recognized standing reasonably acceptable to the Required Lenders, and (ii) unaudited Consolidated balance sheets of each of FCN Holding and its Subsidiaries, Saban and its Subsidiaries and IFE and its Subsidiaries as of the end of such Fiscal Year and unaudited Consolidated statements of operations, stockholders' equity and cash flows of each of FCN Holding and its Subsidiaries, Saban and its Subsidiaries and IFE and its Subsidiaries for such Fiscal Year, setting forth in comparative form for each Fiscal Year after the Fiscal Year ending June 30, 1998, in the case of each such Consolidated balance sheet, the corresponding figures as of the last day of the immediately preceding Fiscal Year from the Consolidated balance sheet for such Persons for such immediately preceding Fiscal Year and, in the case of each such Consolidated statement of operations, stockholders' equity or cash flows, the corresponding figures for the immediately preceding Fiscal Year, all in reasonable detail, together with (A) a schedule in form reasonably satisfactory to the Administrative Agent of the computations used by such accountants in determining, as of the end of such Fiscal Year, compliance with the last paragraph of Section 5.02(c), if applicable, and Sections 5.02(d)(viii), 5.02(d)(ix), 5.02(f)(iii) and 5.04(a) (including with respect to each such Section, where applicable, the calculations of the maximum or minimum amount, ratio or percentage, as the case may be, permissible under the terms of such Section, and the calculation of the amount, ratio or percentage then in existence) and (B) in the event of any change in the generally accepted accounting principles used by such accountants in the preparation of the audited financial statements referred to in clause (i) of this Section 5.03(c), a reasonably detailed description of such changes prepared by such accountants and, if and to the 113 extent necessary for determining compliance with the last paragraph of Section 5.02(c), if applicable, or any of Section 5.02(d)(viii), 5.02(d)(ix), 5.02(f)(iii) or 5.04(a), a statement of reconciliation conforming such audited financial statements to the generally accepted accounting principles applied in the preparation of the Consolidated financial statements of Holdings and its Subsidiaries for the Fiscal Quarter ending December 31, 1997. (d) Compliance Certificate. Together with each delivery to the ---------------------- Lenders of the financial statements of Holdings and its Subsidiaries referred to in Section 5.03(b) and 5.03(c), a certificate of the Chief Financial Officer of Holdings, in form and substance reasonably satisfactory to the Administrative Agent: (i) duly certifying that, subject, in the case of any such financial statements delivered to the Lenders pursuant to Section 5.03(b), to normal year-end audit adjustments, the Consolidated financial statements delivered with such certificate fairly present the Consolidated financial condition of Holdings and its Subsidiaries as of the last day of such Fiscal Quarter or such Fiscal Year, as the case may be, and the Consolidated results of operations and cash flows of Holdings and its Subsidiaries for the Fiscal Quarter or the Fiscal Year ended on such date; (ii) in the case of any such financial statements delivered to the Lenders pursuant to Section 5.03(c)(ii), duly certifying that the Consolidated financial statements delivered with such certificate fairly present the Consolidated financial condition of FCN Holding and its Subsidiaries, Saban and its Subsidiaries or IFE and its Subsidiaries, as appropriate, as of the last day of such Fiscal Year and the Consolidated results of operations and cash flows of FCN Holding and its Subsidiaries, Saban and its Subsidiaries or IFE and its Subsidiaries, as appropriate, for the Fiscal Year ended on such date; (iii) duly certifying that, subject, in the case of any such financial statements delivered to the Lenders pursuant to Section 5.03(b), to normal year-end audit adjustments, the Consolidated financial statements delivered with such certificate have been prepared in accordance with GAAP for such Fiscal Quarter or such Fiscal Year, as the case may be; (iv) duly certifying that no Default has occurred and is continuing or, if a Default has occurred and is continuing, a statement as to the nature thereof and the action that Holdings and the Borrowers (or any of them) have taken and/or propose to take with respect thereto; (v) in the case of any such financial statements delivered to the Lenders pursuant to Section 5.03(b), setting forth a schedule of the computations used by Holdings and the Borrowers in determining compliance with the last paragraph of Section 5.02(c), if applicable, and Sections 5.02(d)(viii), 5.02(d)(ix), 5.02(f)(iii) and 5.04(a) (including with respect to each such Section, where applicable, the calculations of the maximum or minimum amount, ratio or percentage, as the case may be, permissible 114 under the terms of such Section, and the calculation of the amount, ratio or percentage then in existence); and (vi) in the case of any such financial statements delivered to the Lenders pursuant to Section 5.03(b), (A) setting forth a description in reasonable detail of all of the changes in the generally accepted accounting principles applied in the preparation of such financial statements from the generally accepted accounting principles applied in the preparation of the Consolidated financial statements of Holdings and its Subsidiaries for the Fiscal Quarter ending December 31, 1997 and (B) accompanied by a statement of reconciliation, if and to the extent necessary for determining whether any of the changes in the generally accepted accounting principles applied in the preparation of such financial statements would affect the calculation of, or compliance with, the last paragraph of Section 5.02(c), if applicable, or any of Section 5.02(d)(viii), 5.02(d)(ix), 5.02(f)(iii) or 5.04(a), conforming such financial statements to the generally accepted accounting principles applied in the preparation of the Consolidated financial statements of Holdings and its Subsidiaries for the Fiscal Quarter ending December 31, 1997. (e) Licenses, Etc. Promptly and in any event within three Business ------------- Days after receipt thereof, notice of any actual, pending or threatened suspension, termination, or revocation of any of the Governmental Authorizations of any of the Loan Parties or any of their respective Subsidiaries that are necessary to own or lease and operate their respective property and assets and to conduct their respective businesses as now conducted and as proposed to be conducted, or any enjoinment, barring or suspension of the ability of any such Loan Party or any such Subsidiary to conduct any of its businesses in the ordinary course. (f) Litigation. Promptly and in any event within five Business Days ---------- after the commencement thereof, notice of all actions, suits, investigations, litigation, arbitrations and proceedings against or affecting any of the Loan Parties or any of their respective Subsidiaries or any of the property or assets thereof in any court or before any arbitrator or by or before any Governmental Authority of any kind (i) that, either individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect or (ii) that purports to affect the legality, validity, binding effect or enforceability of any aspect of the Transaction, any of the Loan Documents or the Related Documents or any of the other transactions contemplated thereby; and, promptly after the occurrence thereof, notice of any adverse change in the status or any materially adverse financial effect on any of the Loan Parties or any of their respective Subsidiaries of any such action, suit, investigation, litigation, arbitration or proceeding; and, in each case, upon the reasonable request of the Administrative Agent, any other information available to any of the Loan Parties or any of their respective Subsidiaries with respect to any of the foregoing that would enable the Administrative Agent and the Lenders to more fully evaluate such action, suit, investigation, litigation, arbitration or proceeding. (g) ERISA Events and ERISA Reports; Plan Terminations, Etc. (i) ------------------------------------------------------ Promptly and in any event within ten days after any of the Loan Parties or any of the ERISA Affiliates knows or has reason to know that any ERISA Event has occurred, a statement of a Responsible Officer of Fox Kids, Holdings or a Borrower describing such ERISA Event and the action, if any, that such Loan Party or such ERISA Affiliate has taken and/or proposes to take with respect thereto, 115 together with all materials or information filed or to be filed with any Governmental Authority or any trustee for any Plan as a result of such ERISA Event; (ii) on the date on which any records, documents or other information must be furnished to the PBGC with respect to any Plan pursuant to Section 4010 of ERISA, a copy of such records, documents and information; (iii) promptly and in any event within two Business Days after receipt thereof by any of the Loan Parties or any of the ERISA Affiliates, copies of each notice from the PBGC stating its intention to terminate any Plan or to have a trustee appointed to administer any Plan; (iv) promptly and in any event within 30 days after the filing thereof with the Internal Revenue Service, a copy of Schedule B (Actuarial Information) to the annual report (form 5500) with respect to each of the Plans; and (v) promptly and in any event within five Business Days after receipt thereof by any of the Loan Parties or any of the ERISA Affiliates from the sponsor of a Multiemployer Plan, copies of each notice concerning (A) the imposition of Withdrawal Liability by any such Multiemployer Plan, (B) the reorganization or termination, within the meaning of Title IV of ERISA, of any such Multiemployer Plan or (C) the amount of liability incurred, or that could reasonably be expected to be incurred, by any such Loan Party or any such ERISA Affiliate in connection with any event described in subclause (v)(A) or (v)(B) of this Section 5.03(g); provided, however, that, notwithstanding the foregoing provisions of this Section 5.03(g), none of the Borrowers shall be required to notify the Administrative Agent or any of the Lenders of the occurrence of any of the events, developments or circumstances, or to deliver any of the reports or notices, referred to above under this Section 5.03(g) unless and until the aggregate liability that could reasonably be expected to be incurred by the Loan Parties and the ERISA Affiliates as a result thereof exceeds $2,500,000. (h) Securities Reports. Promptly and in any event within five ------------------ Business Days after the sending or filing thereof, copies of all proxy statements, financial statements, material change reports and other material reports that any of the Loan Parties or any of their respective Subsidiaries sends to its stockholders, partners or members (or equivalent persons thereto), copies of all regular, periodic and special reports and information forms, and all registration statements, prospectuses and information memoranda, that any of the Loan Parties or any of their respective Subsidiaries files with the Securities and Exchange Commission or any Governmental Authority that may be substituted therefor, or with any national or international securities exchange, and copies of all private placement or offering memoranda pursuant to which securities of any of the Loan Parties or any of their respective Subsidiaries that are exempt from registration under the Securities Act are proposed to be issued and sold thereby. (i) Creditor Reports. Promptly and in any event within five Business ---------------- Days after the furnishing or receipt thereof, copies of any statement or report furnished to or received from any other holder of the securities of any of the Loan Parties or any of their respective Subsidiaries pursuant to the terms of any indenture, loan or credit agreement or similar agreement of any of the Loan Parties or any of their respective Subsidiaries with amounts outstanding or having commitments to extend credit in an aggregate principal amount of at least $10,000,000 (including, without limitation, any amendments, waivers or consents given or requested in respect thereof, any notices of default, acceleration or redemption delivered thereunder, any designations of Subsidiaries thereof as "Unrestricted Subsidiaries" or the equivalent thereof under the terms thereof, and any compliance certificates or fairness opinions delivered in connection therewith) 116 and not otherwise required to be furnished to the Lenders pursuant to any other clause of this Section 5.03. (j) Related Document Notices. Promptly and in any event within five ------------------------ Business Days after the furnishing or receipt thereof, copies of all notices, requests and other documents furnished to or received by any of the Loan Parties or any of their Affiliates under or pursuant to any of the Related Documents and, from time to time upon the reasonable request of the Administrative Agent, such information and reports regarding the Related Documents as the Administrative Agent, or any of the Lenders through the Administrative Agent, may reasonably request. (k) Tax Reports and Notices. (i) Within ten Business Days after ----------------------- receipt thereof, copies of all Revenue Agent Reports (Internal Revenue Service form 886) or other written proposals of the Internal Revenue Service that propose, determine or otherwise set forth adjustments (whether positive or negative) to the United States federal income tax liability of the affiliated group (within the meaning of Section 1504(a)(1) of the Internal Revenue Code) of which Holdings and the Borrowers are members aggregating $5,000,000 or more; (ii) promptly and in any event within five Business Days after the due date (after giving effect to all applicable extensions) for filing the final federal income tax return in respect of each taxable year of Fox Kids, a certificate of Fox Kids, duly executed by a Responsible Officer thereof, stating that the common parent of the affiliated group (within the meaning of Section 1504(a)(1) of the Internal Revenue Code) of which Holdings and the Borrowers are members has paid to the Internal Revenue Service or other relevant taxation authority, or to Holdings or the applicable Borrower, the full amount that such affiliated group is required to pay in respect of United States federal income taxes for such taxable year and that Fox Kids and each of its Subsidiaries have received any amount payable to them, and have not paid amounts in respect of taxes (federal, state, local or foreign) in excess of the amount Fox Kids or such Subsidiary is required to pay, under the established tax sharing arrangements of Fox Kids and its Affiliates in respect of such taxable year; and (iii) promptly and in any event within ten Business Days after receipt thereof, copies of the determination of any request for a ruling or determination letter from the Internal Revenue Service or any other taxation authority regarding the actual or asserted tax liability or deficiency of any of the Loan Parties or any of their respective Subsidiaries. (l) Environmental Conditions. Promptly and in any event within five ------------------------ Business Days after a Responsible Officer becomes aware of the assertion or occurrence thereof, notice of: (i) any condition or occurrence on or arising from any property owned or operated by any of the Loan Parties or any of their respective Subsidiaries that resulted or is alleged to have resulted in noncompliance by any such Loan Party or any such Subsidiary with any applicable Environmental Law or Environmental Permit in such a manner as, either individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect; (ii) any condition or occurrence on any property owned or operated by any of the Loan Parties or any of their respective Subsidiaries that could reasonably be expected to cause such property to be subject to any restrictions on the ownership, [*] CONFIDENTIAL TREATMENT REQUESTED 117 occupancy, use or transferability by any such Loan Party or any such Subsidiary of such property under any Environmental Law which, either individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect; and (iii) the taking of any removal or remedial action in response to the actual or alleged presence of any Hazardous Materials on any property owned or operated by any of the Loan Parties or any of their respective Subsidiaries as required by any Environmental Law, any Environmental Permit or any Governmental Authority. All such notices shall set forth in reasonable detail the nature of the condition, occurrence, removal or remedial action described therein and, in the case of each such condition or occurrence, the action that such Loan Party or such Subsidiary has taken and/or proposes to take with respect thereto. (m) Insurance. As soon as available and in any event within 30 days --------- after the end of each Fiscal Year, a report summarizing the insurance coverage in effect for each of the Loan Parties and each of their respective Subsidiaries, specifying therein the type, carrier, amount, deductibles, co-insurance requirements and expiration dates thereof and containing such additional information as any of the Lenders, through the Administrative Agent, may reasonably request. (n) Implied Debt Rating. As promptly as practicable and in any event ------------------- within five Business Days after receipt thereof, copies of each notice received from S&P or Moody's assigning an Implied Debt Rating or a change in any Implied Debt Rating. (o) Other Information. Such other information respecting the ----------------- business, condition (financial or otherwise), operations, performance, properties or prospects of any of the Loan Parties or any of their respective Subsidiaries as any of the Lenders, through the Administrative Agent, may from time to time reasonably request. SECTION 5.04. Financial Covenants. So long as any of the Advances ------------------- shall remain unpaid or any of the Lenders shall have any Commitment hereunder: (a) Senior Leverage Ratio. Holdings will maintain a Senior Leverage --------------------- Ratio at all times during each Measurement Period of not more than the amount set forth below for each Measurement Period set forth below: [*] [*] CONFIDENTIAL TREATMENT REQUESTED 118 [*] (b) Fixed Charge Coverage Ratio. Fox Kids will maintain a Fixed --------------------------- Charge Coverage Ratio as of the last day of each Measurement Period of not less than the amount set forth below for each Measurement Period set forth below: [*] (c) Interest Coverage Ratio. Fox Kids will maintain an Interest ----------------------- Coverage Ratio as of the last day of each Measurement Period of not less than the amount set forth below for each Measurement Period set forth below: [*] CONFIDENTIAL TREATMENT REQUESTED 119 [*] SECTION 5.05. Covenant of Holdings. So long as any of the Advances -------------------- shall remain unpaid or any of the Lenders shall have any Commitment hereunder, Holdings will not, at any time, enter into or conduct any business or engage in any activity other than: (i) the holding of all of the Equity Interests in each of the Borrowers; (ii) the performance of its Obligations under each of the Loan Documents to which it is or is to be a party, in accordance with the respective terms thereof; and (iii) the conduct of any business or the engagement in any activity otherwise expressly permitted to be made or taken by Holdings under this Agreement and the other Loan Documents. 120 ARTICLE VI GUARANTEE SECTION 6.01. Guarantee. (a) Holdings and each of the Borrowers --------- hereby unconditionally and irrevocably guarantee (the undertaking by Holdings and each of the Borrowers under this Article VI being the "GUARANTEE") the punctual payment when due, whether at scheduled maturity or at a date fixed for prepayment or by acceleration, demand or otherwise, of all of the Obligations of each of the other Loan Parties now or hereafter existing under or in respect of the Loan Documents (including, without limitation, any extensions, modifications, substitutions, amendments or renewals of any or all of the foregoing Obligations), whether direct or indirect, absolute or contingent, and whether for principal, interest, premium, fees, indemnification payments, contract causes of action, costs, expenses or otherwise (such Obligations being the "GUARANTEED OBLIGATIONS"), and agree to pay any and all expenses (including, without limitation, reasonable fees and expenses of counsel) incurred by the Administrative Agent or any of the other Secured Parties in enforcing any rights under this Guarantee. Without limiting the generality of the foregoing, the liability of Holdings and each of the Borrowers shall extend to all amounts that constitute part of the Guaranteed Obligations and would be owed by any of the other Loan Parties to the Administrative Agent or any of the other Secured Parties under or in respect of the Loan Documents but for the fact that they are unenforceable or not allowable due to the existence of a bankruptcy, reorganization or similar proceeding involving such other Loan Party. (b) Holdings and each of the Borrowers and, by its acceptance of this Guarantee, the Administrative Agent and each of the other Secured Parties, hereby confirm that it is the intention of all such Persons that this Guarantee and the Obligations of Holdings and each of the Borrowers hereunder not constitute a fraudulent transfer or conveyance for purposes of the United States Federal Bankruptcy Code, the Uniform Fraudulent Conveyance Act, the Uniform Fraudulent Transfer Act or any similar federal or state Requirements of Law covering the protection of creditors' rights or the relief of debtors to the extent applicable to this Guarantee and the Obligations of Holdings and each of the Borrowers hereunder. To effectuate the foregoing intention, Holdings, each of the Borrowers, the Administrative Agent and each of the other Secured Parties hereby irrevocably agree that, solely with respect to the Guaranteed Obligations and the other liabilities of (i) Holdings and each of the Borrowers under this Guarantee which result from or arise out of their respective guarantees under subsection (a) of this Section 6.01 of the Obligations of Fox Kids under or in respect of the Loan Documents and (ii) each of the Borrowers under this Guarantee which result from or arise out of their respective guarantees under subsection (a) of this Section 6.01 of the Obligations of Holdings under or in respect of the Loan Documents, such Guaranteed Obligations and other liabilities shall be limited to the maximum amount as will, after giving effect to such maximum amount and all other contingent and fixed liabilities of Holdings or such Borrower that are relevant under such Requirements of Law, and after giving effect to any collections from, any rights to receive contributions from, or payments made by or on behalf of, any of the Subsidiaries of the Borrowers in respect of the Obligations of such Subsidiary under the Subsidiaries Guarantee and, in the case of the Borrowers, this Guarantee, result in the Guaranteed Obligations and all other liabilities of Holdings or such Borrower under this Guarantee not constituting a fraudulent transfer or conveyance. (c) Holdings and each of the Borrowers hereby unconditionally and irrevocably agree that, in the event any payment shall be required to be made to the Secured Parties under this Guarantee, the Fox Kids Guarantee, the Subsidiaries Guarantee or any other guarantee, Holdings or such Borrower 121 will contribute, to the fullest extent permitted by applicable law, such amounts to Fox Kids, each of the Subsidiaries of Fox Kids party to the Subsidiaries Guarantee or this Guarantee and each other guarantor as would maximize the aggregate amount payable to the Secured Parties under or in respect of the Loan Documents. SECTION 6.02. Guarantee Absolute. (a) Holdings and each of the ------------------ Borrowers guarantee that all of the Guaranteed Obligations will be paid strictly in accordance with the terms of the Loan Documents, regardless of any Requirements of Law now or hereafter in effect in any jurisdiction affecting any of such terms or the rights of the Administrative Agent or any of the other Secured Parties with respect thereto. The Obligations of Holdings and each of the Borrowers under this Guarantee are independent of the Guaranteed Obligations or any other Obligations of any of the other Loan Parties under or in respect of the Loan Documents, and a separate action or actions may be brought and prosecuted against Holdings and each of the Borrowers to enforce this Guarantee, irrespective of whether any action is brought against any of the other Loan Parties or whether any of the other Loan Parties is joined in any such action or actions. The liability of Holdings and each of the Borrowers under this Guarantee shall be absolute, unconditional and irrevocable irrespective of, and Holdings and each of the Borrowers hereby irrevocably waive any defenses they may now have or may hereafter acquire in any way relating to, any and all of the following: (i) any lack of validity or enforceability of any of the Loan Documents or any other agreement or instrument relating thereto; (ii) any change in the time, manner or place of payment of, or in any other term of, all or any of the Guaranteed Obligations or any other Obligations of any of the Loan Parties under or in respect of the Loan Documents, or any other amendment or waiver of or any consent to departure from any of the Loan Documents (including, without limitation, any increase in the Guaranteed Obligations resulting from the extension of additional credit to any of the other Loan Parties or any of their respective Subsidiaries or otherwise); (iii) any taking, exchange, release or nonperfection of any of the Collateral, or any taking, release or amendment or waiver of, or consent to departure from, the Fox Kids Guarantee, the Subsidiaries Guarantee or any other guarantee, for all or any of the Guaranteed Obligations; (iv) any manner of application of Collateral, or proceeds thereof, to all or any of the Guaranteed Obligations, or any manner of sale or other disposition of any Collateral for all or any of the Guaranteed Obligations or any other Obligations of any of the other Loan Parties under or in respect of the Loan Documents, or any other property and assets of any of the other Loan Parties or any of their respective Subsidiaries; (v) any change, restructuring or termination of the legal structure or existence of any of the other Loan Parties or any of their respective Subsidiaries; (vi) any failure of any of the Secured Parties to disclose to any of the Loan Parties any information relating to the business, condition (financial or otherwise), operations, performance, properties or prospects of any of the other Loan Parties now or hereafter known to such Secured Party; 122 (vii) the failure of any other Person to execute the Fox Kids Guarantee, the Subsidiaries Guarantee or any other guarantee or agreement or the release or reduction of liability of any of the other Loan Parties or any other guarantor or surety with respect to the Guaranteed Obligations; or (viii) any other circumstance (including, without limitation, any statute of limitations or any existence of or reliance on any representation by the Administrative Agent or any of the other Secured Parties) that might otherwise constitute a defense available to, or a discharge of, Holdings, such Borrower, any of the other Loan Parties or any other guarantor or surety. This Guarantee shall continue to be effective or be reinstated, as the case may be, if at any time any payment of any of the Guaranteed Obligations is rescinded or must otherwise be returned by the Administrative Agent or any of the other Secured Parties or by any other Person upon the insolvency, bankruptcy or reorganization of any of the other Loan Parties or otherwise, all as though such payment had not been made, and Holdings and each of the Borrowers hereby unconditionally and irrevocably agree that they will indemnify the Administrative Agent and each of the other Secured Parties, upon demand, for all of the costs and expenses (including, without limitation, reasonable fees and expenses of counsel) incurred by the Administrative Agent or such other Secured Party in connection with any such rescission or restoration, including any such costs and expenses incurred in defending against any claim alleging that such payment constituted a preference, a fraudulent transfer or a similar payment under any bankruptcy, insolvency or similar Requirements of Law. (b) Holdings and each of the Borrowers hereby further agree that, as between Holdings or such Borrower, on the one hand, and the Administrative Agent and the Secured Parties, on the other hand, (i) the Guaranteed Obligations of Holdings or such Borrower may be declared to be forthwith due and payable as provided in Section 7.01 (and shall be deemed to have become automatically due and payable in the circumstances provided in Section 7.01) for purposes of Section 6.01, notwithstanding any stay, injunction or other prohibition preventing such declaration in respect of the Obligations of any of the Loan Parties guaranteed hereunder (or preventing such Guaranteed Obligations from becoming automatically due and payable) as against any other Person and (ii) in the event of any declaration of acceleration of such Guaranteed Obligations (or such Guaranteed Obligations being deemed to have become automatically due and payable) as provided in Section 7.01, such Guaranteed Obligations (whether or not due and payable by any other Person) shall forthwith become due and payable by Holdings or such Borrower for all purposes of this Guarantee. SECTION 6.03. Waivers and Acknowledgments. (a) Holdings and each of --------------------------- the Borrowers hereby unconditionally and irrevocably waive promptness, diligence, notice of acceptance, presentment, demand for performance, notice of nonperformance, default, protest, dishonor and any other notice with respect to any of the Guaranteed Obligations and this Guarantee, and any requirement that the Administrative Agent or any of the other Secured Parties protect, secure, perfect or insure any Lien or any property or assets subject thereto or exhaust any right or take any action against any of the other Loan Parties or any other Person or any of the Collateral. (b) Holdings and each of the Borrowers hereby waive (i) any defense arising by reason of any claim or defense based upon an election of remedies by the Administrative Agent or the other Secured Parties which in any manner impairs, reduces, releases or otherwise adversely affects the subrogation, reimbursement, exoneration, contribution or indemnification rights of Holdings or such Borrower or any other rights of Holdings or such Borrower to proceed against any of the other Loan 123 Parties, any other guarantor or any other Person or any of the Collateral, and (ii) any defense based on any right of setoff or counterclaim against or in respect of the Obligations of Holdings or such Borrower under this Guarantee. (c) Holdings and each of the Borrowers hereby unconditionally and irrevocably waive any duty on the part of the Administrative Agent or any of the other Secured Parties to disclose to Holdings or such Borrower any matter, fact or thing relating to the business, condition (financial or otherwise), operations, performance, properties or prospects of any of the other Loan Parties or any of their respective Subsidiaries or the property and assets thereof now or hereafter known by the Administrative Agent or such other Secured Party. (d) Holdings and each of the Borrowers hereby unconditionally waive any right to revoke this Guarantee, and acknowledge that this Guarantee is continuing in nature and applies to all Guaranteed Obligations, whether existing now or in the future. (e) Holdings and each of the Borrowers hereby acknowledge that they will receive substantial direct and indirect benefits from the financing arrangements contemplated by the Loan Documents and that the waivers set forth in Section 6.02 and in this Section 6.03 are knowingly made in contemplation of such benefits. SECTION 6.04. Subrogation. Holdings and each of the Borrowers hereby ----------- unconditionally and irrevocably agree not to exercise any rights that they may now have or may hereafter acquire against any of the other Loan Parties or any other insider guarantor that arise from the existence, payment, performance or enforcement of the Obligations of Holdings or such Borrower under this Guarantee or any of the other Loan Documents, including, without limitation, any right of subrogation, reimbursement, exoneration, contribution or indemnification and any right to participate in any claim or remedy of the Administrative Agent or any of the other Secured Parties against such other Loan Party or any other insider guarantor or any Collateral, whether or not such claim, remedy or right arises in equity or under contract, statute, common law or any other Requirements of Law, including, without limitation, the right to take or receive from such other Loan Party or any other insider guarantor, directly or indirectly, in cash or other property or by set-off or in any other manner, payment or security on account of such claim, remedy or right, unless and until such time as all of the Guaranteed Obligations and all of the other amounts payable under this Guarantee shall have been paid in full in cash, all of the Bank Hedge Agreements shall have expired or been terminated and the Commitments shall have expired or terminated. If any amount shall be paid to Holdings or any of the Borrowers in violation of the immediately preceding sentence at any time prior to the latest of (a) the payment in full in cash of all of the Guaranteed Obligations and all of the other amounts payable under this Guarantee, (b) the expiration or termination of all of the Bank Hedge Agreements and (c) the Termination Date, such amount shall be received and held in trust for the benefit of the Administrative Agent and the other Secured Parties, shall be segregated from the other property and funds of Holdings or such Borrower and shall be delivered forthwith to the Administrative Agent in the same form as so received (with any necessary endorsement or assignment) to be credited and applied to the Guaranteed Obligations and the other amounts payable under this Guarantee, whether matured or unmatured, in accordance with the terms of the Loan Documents, or to be held as Collateral for any of the Guaranteed Obligations or any of the other amounts payable under this Guarantee thereafter arising. If (i) Holdings or any of the Borrowers shall pay to the Administrative Agent all or any part of the Guaranteed Obligations, (ii) all of the Guaranteed Obligations and all of the other amounts payable under this Guarantee shall have been paid in full in cash, (iii) all of the Bank Hedge Agreements shall have expired or been terminated and (iv) the Termination Date shall 124 have occurred, the Administrative Agent and the other Secured Parties will, at Holdings' or such Borrower's request and expense, execute and deliver to Holdings or such Borrower appropriate documents, without recourse and without representation or warranty, necessary to evidence the transfer of subrogation to Holdings or such Borrower of an interest in the Guaranteed Obligations resulting from the payment made by Holdings or such Borrower under this Guarantee. SECTION 6.05. Continuing Guarantee; Assignments. This Guarantee is a --------------------------------- continuing guarantee and shall (a) remain in full force and effect until the latest of (i) the payment in full in cash of all of the Guaranteed Obligations and all of the other amounts payable under this Guarantee, (ii) the expiration or termination of all of the Bank Hedge Agreements and (iii) the Termination Date, (b) be binding upon Holdings and each of the Borrowers and their respective successors and assigns and (c) inure to the benefit of, and be enforceable by, the Administrative Agent and the other Secured Parties and their respective successors, transferees and assigns. Without limiting the generality of clause (c) of the immediately preceding sentence, any of the Lenders may assign or otherwise transfer all or any portion of its rights and obligations under this Agreement (including, without limitation, all or any portion of its Commitment or Commitments, the Advances owing to it and the Note or Notes held by it) to any other Person, and such other Person shall thereupon become vested with all the benefits in respect thereof granted to such Lender under this Article VI or otherwise, in each case as provided in Section 9.08. ARTICLE VII EVENTS OF DEFAULT SECTION 7.01. Events of Default. If any of the following events ----------------- ("EVENTS OF DEFAULT") shall occur and be continuing: (a) (i) any of the Borrowers shall fail to pay any principal of any Advance made to it when the same shall become due and payable, whether by scheduled maturity or at a date fixed for prepayment or by acceleration, demand or otherwise, or (ii) any of the Borrowers shall fail to pay any interest on any Advance made to it, or any of the other Loan Parties shall fail to make any other payment under or in respect of any of the Loan Documents required to have been made by it, whether by scheduled maturity or at a date fixed for payment or prepayment or by acceleration, demand or otherwise, and, in each case under this clause (ii), such default remains unremedied for at least five consecutive days after the same becomes due and payable; or (b) any representation or warranty made by any of the Loan Parties (or any of their respective officers) under or in connection with any of the Loan Documents shall prove to have been incorrect in any material respect on the date as of which it was made or deemed made; or (c) (i) Holdings or any of the Borrowers shall fail to perform or observe any term, covenant or agreement contained in Section [*] on its part to be performed or observed, (ii) [*] (iii) any of the Subsidiaries of the Borrowers shall fail to perform any term, covenant or agreement contained in [*] or (iv) any of the Loan Parties shall fail to [*] CONFIDENTIAL TREATMENT REQUESTED 125 perform or observe any term, covenant or agreement contained in [*] or (d) any of the Loan Parties shall fail to perform any term, covenant or agreement contained in any of the Loan Documents on its part to be performed or observed that is not otherwise referred to in Section 7.01(c) if such failure shall remain unremedied for at least [*] after the earlier of the date on which (i) a Responsible Officer of any of the Loan Parties first becomes aware of such failure and (ii) written notice thereof shall have been given to Holdings or any of the Borrowers by the Administrative Agent or any of the Lenders; or (e) (i) any of the Loan Parties or any of their respective Subsidiaries (other than any of the Excluded Fox Kids Subsidiaries) shall fail to pay any principal of, premium or interest on, or any other amount payable in respect of, one or more items of Indebtedness of the Loan Parties and their Subsidiaries (other than any of the Excluded Fox Kids Subsidiaries) (excluding Indebtedness outstanding hereunder) that is outstanding (or under which one or more Persons have a commitment to extend credit) in an aggregate principal or notional amount of [*] when the same becomes due and payable (whether by scheduled maturity, required prepayment, acceleration, demand or otherwise), and such failure shall continue after the applicable grace period, if any, specified in the agreements or instruments relating to all such Indebtedness; or (ii) any other event shall occur or condition shall exist under the agreements or instruments relating to one or more items of Indebtedness of the Loan Parties and their Subsidiaries (other than any of the Excluded Fox Kids Subsidiaries) (excluding Indebtedness outstanding hereunder) that is outstanding (or under which one or more Persons have a commitment to extend credit) in an aggregate principal or notional amount of [*] and such other event or condition shall continue after the applicable grace period, if any, specified in all such agreements or instruments, if the effect of such event or condition is to accelerate, or to permit the acceleration of, the maturity of such Indebtedness or otherwise to cause, or to permit the holder thereof to cause, such Indebtedness to mature; or (iii) one or more items of Indebtedness of the Loan Parties and their Subsidiaries (other than any of the Excluded Fox Kids Subsidiaries) (excluding Indebtedness outstanding hereunder) that is outstanding (or under which one or more Persons have a commitment to extend credit) in an aggregate principal or notional amount of [*] shall be declared to be due and payable or required to be prepaid or redeemed (other than by a regularly scheduled or required prepayment or redemption), purchased or defeased, or an offer to prepay, redeem, purchase or defease such Indebtedness shall be required to be made, in each case prior to the stated maturity thereof; or (f) any of the Loan Parties or any of their respective Subsidiaries (other than any of the Excluded Fox Kids Subsidiaries) shall generally not pay its debts as such debts become due, or shall admit in writing its inability to pay its debts generally, or shall make a general assignment for the benefit of creditors; or any proceeding shall be instituted by or against any of the Loan Parties or any of their respective Subsidiaries (other than any of the Excluded Fox Kids Subsidiaries) seeking to adjudicate it a bankrupt or insolvent, or (other than for the purpose of a solvent amalgamation or reconstruction) seeking liquidation, winding up, reorganization, arrangement, adjustment, protection, relief or composition of it or its debts under any law relating to bankruptcy, insolvency or reorganization or relief of debtors, or seeking the entry of an order for relief or the appointment of a receiver, trustee, administrator or other similar official for it [*] CONFIDENTIAL TREATMENT REQUESTED 126 or for any substantial part of its property and assets and, in the case of any such proceeding instituted against it (but not instituted by it) that is being diligently contested by it in good faith, either such proceeding shall remain undismissed or unstayed for a period of at least [*] or any of the actions sought in such proceeding (including, without limitation, the entry of an order for relief against, or the appointment of a receiver, trustee, custodian or other similar official for, it or any substantial part of its property and assets) shall occur; or any event or action analogous to or having a substantially similar effect to any of the events or actions set forth above in this Section 7.01(f) (other than a solvent reorganization) shall occur under the Requirements of Law of any jurisdiction applicable to any of the Loan Parties or any of their respective Subsidiaries (other than any of the Excluded Fox Kids Subsidiaries); or any of the Loan Parties or any of their respective Subsidiaries (other than any of the Excluded Fox Kids Subsidiaries) shall take any corporate, partnership, limited liability company or other similar action to authorize any of the actions set forth above in this Section 7.01(f); or (g) one or more judgments or orders for the payment of money [*] in the aggregate shall be rendered against one or more of the Loan Parties and their Subsidiaries (other than any of the Excluded Fox Kids Subsidiaries) and shall remain unsatisfied and either (i) enforcement proceedings shall have been commenced by any creditor upon any such judgment or order or (ii) there shall be any period of at least [*] during which a stay of enforcement of any such judgment or order, by reason of a pending appeal or otherwise, shall not be in effect; provided, however, that any such judgment or order shall not give rise to an Event of Default under this Section 7.01(g) if and for so long as (A) the amount of such judgment or order is covered by a valid and binding policy of insurance between the defendant and the insurer covering full payment thereof and (B) such insurer has been notified, and has not disputed the claim made for payment, of the amount of such judgment or order; or (h) one or more nonmonetary judgments or orders (including, without limitation, writs or warrants of attachment, garnishment, execution, distraint or similar process) shall be rendered against any of the Loan Parties or any of their respective Subsidiaries that, either individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect, and there shall be any period of at least [*] during which a stay of enforcement of any such judgment or order, by reason of a pending appeal or otherwise, shall not be in effect; or (i) any provision of any of the Loan Documents after delivery thereof pursuant to Section 3.01 or 5.02(j) shall for any reason (other than pursuant to the terms thereof) cease to be valid and binding on or enforceable against any of the Loan Parties intended to be a party to it, or any such Loan Party shall so state in writing; or (j) any of the Collateral Documents after delivery thereof pursuant to Section 3.01 or 5.02(j) shall for any reason (other than pursuant to the terms thereof) cease to create a valid and perfected first priority lien on and security interest in the Collateral purported to be covered thereby; or (k) any of the following events or conditions shall have occurred and such event or condition, when aggregated with any and all other such events or conditions, has resulted or could reasonably be expected to result in liabilities of one or more of the Loan Parties and/or the ERISA Affiliates in an aggregate amount [*] at any time: [*] CONFIDENTIAL TREATMENT REQUESTED 127 (i) any ERISA Event shall have occurred with respect to a Plan; or (ii) any of the Loan Parties or any of the ERISA Affiliates shall have been notified by the sponsor of a Multiemployer Plan that it has incurred Withdrawal Liability to such Multiemployer Plan; or (iii) any of the Loan Parties or any of the ERISA Affiliates shall have been notified by the sponsor of a Multiemployer Plan that such Multiemployer Plan is in reorganization, is insolvent or is being terminated, within the meaning of Title IV of ERISA, and, as a result of such reorganization, insolvency or termination, the aggregate annual contributions of the Loan Parties and the ERISA Affiliates to all of the Multiemployer Plans that are in reorganization, are insolvent or being terminated at such time have been or will be increased over the amounts contributed to such Multiemployer Plans for the plan years of such Multiemployer Plans immediately preceding the plan year in which such reorganization, insolvency or termination occurs; or (iv) any "accumulated funding deficiency" (as defined in Section 302 of ERISA and Section 412 of the Internal Revenue Code), whether or not waived, shall exist with respect to one or more of the Plans, or any Lien shall exist on the property and assets of any of the Loan Parties or any of the ERISA Affiliates in favor of the PBGC or any Plan; or (l) any of the Governmental Authorizations necessary in order to permit any of the Loan Parties or any of their respective Subsidiaries to fully own or lease and operate their respective property and assets or to properly conduct their respective businesses shall cease to be in effect or any such Loan Party or any such Subsidiary shall cease to have the full intended benefit thereof or rights thereunder, unless the revocation, termination, cancellation, denial, impairment or modification of such Governmental Authorization, either individually or in the aggregate, could not reasonably be expected to have a Material Adverse Effect; or (m) [*] (n) [*] (o) [*] then, and in any such event, the Administrative Agent (i) shall at the request, or may with the consent, of the Required Lenders, by notice to the Borrowers, declare the obligation of each of the Lenders to 128 make Advances to be terminated, whereupon the same shall forthwith terminate, and (ii) shall at the request, or may with the consent, of the Required Lenders, by notice to the Borrowers, declare the Notes, all interest thereon and all other amounts payable under or in respect of this Agreement and the other Loan Documents to be forthwith due and payable, whereupon the Notes, all such interest and all such other amounts shall become and be forthwith due and payable, without presentment, demand, protest or further notice of any kind, all of which are hereby expressly waived by each of the Borrowers; provided, however, that in the event of an actual or deemed entry of an order for relief with respect to any of the Loan Parties under the United States Federal Bankruptcy Code or a similar order or action under any other Requirements of Law covering the protection of creditors' rights or the relief of debtors applicable to such Loan Party, (A) the obligation of each of the Lenders to make Advances shall automatically be terminated and (B) the Notes, all such interest and all such amounts shall automatically become and be due and payable, without presentment, demand, protest or notice of any kind, all of which are hereby expressly waived by each of the Borrowers. ARTICLE VIII THE AGENTS SECTION 8.01. Authorization and Action. (a) Each of the Lenders ------------------------ hereby appoints and authorizes the Administrative Agent to take such action as agent on its behalf and to exercise such powers and discretion under this Agreement and the other Loan Documents as are delegated to the Administrative Agent by the terms hereof and thereof, together with such powers and discretion as are reasonably incidental thereto. As to any matters not expressly provided for under the Loan Documents (including, without limitation, enforcement or collection of the Notes), the Administrative Agent shall not be required to exercise any discretion or take any action, but shall be required to act or to refrain from acting (and shall be fully protected in so acting or refraining from acting) upon the instructions of the Required Lenders, and such instructions shall be binding upon all of the Lenders and all holders of Notes; provided, however, that the Administrative Agent shall not be required to take any action (i) that exposes the Administrative Agent to personal liability or that is contrary to this Agreement or to applicable Requirements of Law or (ii) as to which the Administrative Agent has not received adequate security or indemnity (whether pursuant to Section 8.05 or otherwise). If the security or indemnity furnished to the Administrative Agent for any purpose under or in respect of the Loan Documents shall, in the good faith opinion of the Administrative Agent, be insufficient or become impaired, then the Administrative Agent may require additional security or indemnity and cease, or not commence, to follow the directions or take the actions indemnified against until such additional security or indemnity is furnished. The Administrative Agent agrees to give to each of the Lenders prompt notice of each notice given to it by Holdings or the Borrowers pursuant to the terms of this Agreement or by Fox Kids pursuant to the terms of the Fox Kids Guarantee. (b) The Administrative Agent shall also act as the "collateral agent" under the Loan Documents, and each of the Lenders (in its capacity as a Lender and a Secured Party) hereby appoints and authorizes the Administrative Agent to act as the agent of such Lender for purposes of acquiring, holding and enforcing any and all Liens on Collateral granted by any of the Loan Parties to secure any of the Secured Obligations, together with such powers and discretion as are reasonably incidental thereto. The Administrative Agent may from time to time in its discretion appoint any of the other Lenders or any of the Affiliates of a Lender to act as its co-agent or sub-agent for purposes of holding or enforcing any Lien on the Collateral (or any portion thereof) granted under the Collateral Documents or of exercising 129 any rights and remedies thereunder at the direction of the Administrative Agent. In this connection, the Administrative Agent, as "collateral agent", and such co-agents and sub-agents shall be entitled to the benefits of all provisions of this Article VIII (including, without limitation, Section 8.05, as though such co-agents or sub-agents were the "collateral agent" under the Loan Documents) as if set forth in full herein with respect thereto. (c) Each of the Co-Arrangers shall have no powers or discretion under this Agreement or any of the other Loan Documents other than those bestowed upon it as a co-agent or sub-agent from time to time by the Administrative Agent pursuant to subsection (b) of this Section 8.01, and each of the Lenders hereby acknowledges that none of the Co-Arrangers have any liability under this Agreement or any of the other Loan Documents. SECTION 8.02. Administrative Agent's Reliance, Etc. Neither the ------------------------------------ Administrative Agent nor any of its directors, officers, agents or employees shall be liable for any action taken or omitted to be taken by it or them under or in connection with the Loan Documents, except for its or their own gross negligence or willful misconduct as determined in a final, nonappealable judgment by a court of competent jurisdiction. Without limitation of the generality of the immediately preceding sentence, the Administrative Agent: (a) may treat the payee of any Note as the holder thereof until the Administrative Agent receives and accepts an Assignment and Acceptance entered into by the Lender that is the payee of such Note, as assignor, and an Eligible Assignee, as assignee, as provided in Section 9.08; (b) may consult with legal counsel (including counsel for any of the Loan Parties), independent public accountants and other experts selected by it and shall not be liable for any action taken or omitted to be taken in good faith by it in accordance with the advice of such counsel, accountants or experts; (c) makes no representation or warranty to any of the Secured Parties and shall not be responsible to any of the Secured Parties for any statements, representations or warranties (whether written or oral) made in or in connection with the Loan Documents; (d) shall not have any duty to ascertain or to inquire as to the performance or observance of any of the terms, covenants or conditions of any of the Loan Documents on the part of any of the Loan Parties or to inspect the property and assets (including the books and records) of any of the Loan Parties; (e) shall not be responsible to any of the Secured Parties for the due execution, legality, validity, enforceability, genuineness, sufficiency or value of, or the perfection or priority of any lien or security interest created or purported to be created under or in connection with, any of the Loan Documents or any other instrument or document furnished pursuant thereto; and (f) shall incur no liability under or in respect of any of the Loan Documents by acting upon any notice, consent, order, certificate or other instrument or writing (which may be by telegram, telecopy or telex) believed by it to be genuine and signed or sent by the proper party or parties. 130 SECTION 8.03. The Administrative Agent, the Co-Arrangers and ---------------------------------------------- Affiliates. With respect to its Commitment or Commitments, the Advances made by - ---------- it and the Note or Notes issued to it, Citicorp USA shall have the same rights and powers under the Loan Documents as any of the other Lenders and may exercise the same as though it were not the Administrative Agent; and the term "Lender", "Lenders", "Secured Party" or "Secured Parties" shall, unless otherwise expressly indicated, include Citicorp USA, Citicorp Securities, Chase Securities and BankBoston in their respective individual capacities. Citicorp USA, Citicorp Securities, Chase Securities and BankBoston and their respective Affiliates (whether or not parties hereto) may accept deposits from, lend money to, act as trustee under indentures of, accept investment banking engagements from and generally engage in any kind of business with, any of the Loan Parties, any of their respective Subsidiaries and any Person who may do business with or own securities of any of the Loan Parties or any such Subsidiary, all as if Citicorp USA, Citicorp Securities, Chase Securities and BankBoston were not the Agents and without any duty to account therefor to the other Lenders. SECTION 8.04. Lender Credit Decision. Each of the Lenders hereby ---------------------- acknowledges that it has, independently and without reliance upon any of the Agents or any of the other Lenders and based on the financial statements referred to in Section 4.01 and such other documents and information as it has deemed appropriate, made its own credit analysis and decision to enter into this Agreement. Each of the Lenders also hereby acknowledges that it will, independently and without reliance upon any of the Agents or any of the other Lenders and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under this Agreement. SECTION 8.05. Indemnification. Each of the Lenders hereby severally --------------- agrees to indemnify the Administrative Agent (to the extent not promptly reimbursed by the Borrowers) from and against such Lender's ratable share (determined as provided below in this Section 8.05) of any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind or nature whatsoever that may be imposed on, incurred by, or asserted against the Administrative Agent in any way relating to or arising out of the Loan Documents or any action taken or omitted by the Administrative Agent under the Loan Documents (collectively, the "LENDER INDEMNIFIED COSTS"); provided, however, that none of the Lenders shall be liable for any portion of such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements resulting from the Administrative Agent's gross negligence or willful misconduct as determined in a final, nonappealable judgment by a court of competent jurisdiction. In the case of any claim, investigation, litigation or proceeding giving rise to any Lender Indemnified Costs, the indemnification provided by the Lenders under this Section 8.05 shall apply whether or not any such claim, investigation, litigation or proceeding is brought by the Administrative Agent, any of the other Agents, any of the Lenders or a third party. Without limiting any of the provisions of the immediately preceding sentence, each of the Lenders hereby agrees to reimburse the Administrative Agent promptly upon demand for its ratable share of any costs and expenses (including, without limitation, reasonable fees and expenses of counsel) incurred by the Administrative Agent in connection with the preparation, execution, delivery, administration, modification, amendment or enforcement (whether through negotiations, legal proceedings or otherwise) of, or legal advice in respect of rights or responsibilities under, this Agreement or any of the other Loan Documents, to the extent that the Administrative Agent is not promptly reimbursed for such costs and expenses by the Borrowers. For purposes of this Section 8.05, the Lenders' respective ratable shares of any amount shall be determined, at any time, according to the sum of (a) the aggregate principal amount of all Advances owing to the respective Lenders and outstanding at such time, (b) the aggregate unused 131 portion of the Term Commitments of the respective Term Lenders at such time and (c) the Unused Revolving Credit Commitments of the respective Revolving Credit Lenders at such time. If one or more Defaulted Advances shall be owing by any Defaulting Lender at any time, such Defaulting Lender's Commitment under each of the Facilities under which any such Defaulted Advance was required to have been made shall be considered unused for purposes of this Section 8.05 to the extent of such Defaulted Advance. The failure of any of the Lenders to reimburse the Administrative Agent promptly upon demand for its ratable share of any amount required to be paid by the Lenders to the Administrative Agent as provided in this Section 8.05 shall not relieve any of the other Lenders of its obligation hereunder to reimburse the Administrative Agent for its ratable share of such amount, but none of the Lenders shall be responsible for the failure of any of the other Lenders to reimburse the Administrative Agent for such other Lender's ratable share of such amount. Without prejudice to the survival of any other agreement of any of the Lenders hereunder, the agreement and obligations of each of the Lenders contained in this Section 8.05 shall survive the payment in full of all principal, interest and other amounts payable under this Agreement and the other Loan Documents. SECTION 8.06. Successor Administrative Agent. The Administrative ------------------------------ Agent may resign as to either or both of the Facilities at any time by giving written notice thereof to the Lenders and the Borrowers and may be removed as to both of the Facilities at any time with or without cause by the Required Lenders. Upon any such resignation or removal, the Required Lenders shall have the right to appoint a successor Administrative Agent as to such of the Facilities as to which the Administrative Agent has resigned or been removed. If no successor Administrative Agent shall have been so appointed by the Required Lenders, and shall have accepted such appointment, within 30 days after the retiring Administrative Agent's giving of notice of resignation or the Required Lenders' removal of the retiring Administrative Agent, then the retiring Administrative Agent may, on behalf of the Lenders and the other Secured Parties, appoint a successor Administrative Agent, which shall be a commercial bank organized under the laws of the United States of America or of any state thereof and having a combined capital and surplus of at least $5,000,000,000. Upon the acceptance of any appointment as Administrative Agent hereunder by a successor Administrative Agent as to both of the Facilities and upon the execution and filing or recording of such Uniform Commercial Code financing statements (or the equivalent thereof), or amendments thereto, and such other instruments or notices, as may be necessary or desirable, or as the Required Lenders may reasonably request, in order to continue the perfection of the Liens granted or purported to be granted under the Collateral Documents, such successor Administrative Agent shall succeed to and become vested with all the rights, powers, discretion, privileges and duties of the retiring Administrative Agent, and the retiring Administrative Agent shall be discharged from its duties and obligations under the Loan Documents. Upon the acceptance of any appointment as Administrative Agent hereunder by a successor Administrative Agent as to only one of the Facilities and upon the execution and filing or recording of such Uniform Commercial Code financing statements (or the equivalent thereof), or amendments thereto, and such other instruments or notices, as may be necessary or desirable, or as the Required Lenders may reasonably request, in order to continue the perfection of the Liens granted or purported to be granted under the Collateral Documents, such successor Administrative Agent shall succeed to and become vested with all the rights, powers, discretion, privileges and duties of the retiring Administrative Agent as to such Facility, other than with respect to funds transfers and other similar aspects of the administration of Borrowings under such Facility and payments by the Appropriate Borrowers in respect of such Facility, and the retiring Administrative Agent shall be discharged from its duties and obligations under the Loan Documents as to such Facility, other than as aforesaid. After any retiring Administrative Agent's resignation or removal hereunder as Administrative Agent as to both of the Facilities, the provisions of this Article VIII shall inure to its benefit as to any actions taken or [*] CONFIDENTIAL TREATMENT REQUESTED 132 omitted to be taken by it while it was Administrative Agent as to either of the Facilities under this Agreement. ARTICLE IX MISCELLANEOUS SECTION 9.01. Amendments, Etc. No amendment or waiver of any --------------- provision of this Agreement or the Notes or, to the extent not otherwise provided for therein, any of the other Loan Documents, nor consent to any departure by any of the Loan Parties therefrom, shall in any event be effective unless the same shall be in writing and signed (or, in the case of the Collateral Documents, consented to) by the Required Lenders, and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given; provided, however, that: (a) no amendment, waiver or consent shall, unless in writing and signed by all of the Lenders (other than any of the Lenders that is, at such time, a Defaulting Lender), do any of the following at any time: (i) waive any of the conditions specified in Section 3.01 or, in the case of the initial Borrowing under either of the Facilities, Section 3.02; (ii) change the number of Lenders or the percentage of the Commitments or the aggregate outstanding principal amount of Advances that, in any case, shall be required for the Lenders or any of them to take any action hereunder; (iii) reduce or limit the obligations of Holdings or any of the Borrowers under Article VI, Fox Kids under Section 1 of the Fox Kids Guarantee or any of the Subsidiaries of the Borrowers party to the Subsidiaries Guarantee under Section 1 of the Subsidiaries Guarantee, or otherwise limit any of the Loan Parties' liability with respect to the Obligations owing to the Administrative Agent and the other Secured Parties under or in respect of the Loan Documents; (iv) release all or substantially all of the Collateral in any transaction or any series of related transactions; (v) [*] [*] CONFIDENTIAL TREATMENT REQUESTED 133 [*] (vi) amend this Section 9.01; and (b) no amendment, waiver or consent shall, unless in writing and signed by the Required Lenders and each of the Lenders that has a Commitment under the Term Facility or the Revolving Credit Facility if affected by such amendment, waiver or consent: (i) increase the Commitments of such Lender or subject such Lender to any additional Obligations; (ii) reduce the principal of, or interest on, the Notes held by such Lender or any fees or other amounts payable hereunder to such Lender; (iii) postpone any date fixed for the reduction of the Commitment or Commitments of such Lender, or for any payment of principal of, or interest on, the Notes held by such Lender or any fees or other amounts payable hereunder to such Lender; or (iv) change the order of application of any commitment reduction set forth in Section 2.04 or any prepayment set forth in Section 2.05, in either case in any manner that materially and adversely affects such Lender; and provided further that no amendment, waiver or consent shall, unless in writing and signed by the Administrative Agent in addition to the Lenders required above to take such action, affect the rights or duties of the Administrative Agent under this Agreement or any of the other Loan Documents. Notwithstanding any of the foregoing provisions of this Section 9.01, none of the defined terms set forth in Section 1.01 shall be amended, supplemented or otherwise modified in any manner that would change the meaning, purpose or effect of this Section 9.01 or any section referred to herein unless such amendment, supplement or modification is agreed to in writing by the number and percentage of Lenders (and the Administrative Agent, if applicable) otherwise required to amend such section under the terms of this Section 9.01. SECTION 9.02. Notices, Etc. (a) All notices and other ------------ communications provided for hereunder shall be in writing (including telegraphic, telecopy or telex communication) and mailed by certified mail return receipt requested, telegraphed, telecopied, telexed or delivered: (i) if to Holdings or any of the Borrowers, at its address at 10960 Wilshire Boulevard, Los Angeles, California 90024, Telecopier No.: (310) 235-5552, Attention: Mr. Mel Woods; (ii) if to any of the Initial Lenders, at its Base Rate Lending Office specified opposite its name on Part B of Schedule I hereto; 134 (iii) if to any of the other Lenders, at its Base Rate Lending Office specified on Schedule I to the Assignment and Acceptance pursuant to which it became a Lender; and (iv) if to the Administrative Agent, at its address at 399 Park Avenue, New York, New York 10043, Telecopier No.: (212) 793-8879, Attention: Mr. Andrew Sriubas; or (v) as to Holdings, each of the Borrowers and the Administrative Agent, at such other address as shall be designated by such party in a written notice to each of the other parties and, as to each other party, at such other address as shall be designated by such party in a written notice to Holdings, each of the Borrowers and the Administrative Agent. Notwithstanding any of the other provisions of the Loan Documents, any notice to Holdings or the Borrowers required to be made under this Agreement or any of the other Loan Documents that is delivered to Holdings or one of the Borrowers in accordance with this Section 9.02 shall constitute effective notice to Holdings and each of the Borrowers. All such notices and communications shall, when mailed, telegraphed, telecopied or telexed, be effective when deposited in the mails, delivered to the telegraph company, transmitted by telecopier or confirmed by telex answerback, respectively, addressed as aforesaid, except that notices and communications to the Administrative Agent pursuant to Article II, III or VIII shall not be effective until received by the Administrative Agent. Delivery by telecopier of an executed counterpart of any amendment or waiver of any provision of this Agreement or the Notes or of any Exhibit hereto to be executed and delivered hereunder shall be effective as delivery of a manually executed counterpart thereof. (b) If any notice required under this Agreement or any of the other Loan Documents is permitted to be made, and is made, by telephone, actions taken or omitted to be taken in reliance thereon by the Administrative Agent or any of the Lenders shall be binding upon the Borrowers notwithstanding any inconsistency between the notice provided by telephone and any subsequent writing in confirmation thereof provided to the Administrative Agent or such Lender; provided that any such action taken or omitted to be taken by the Administrative Agent or such Lender shall have been in good faith and in accordance with the terms of this Agreement. SECTION 9.03. No Waiver; Remedies. No failure on the part of any of ------------------- the Lenders or the Administrative Agent to exercise, and no delay in exercising, any right, power or privilege hereunder or under any Note shall operate as a waiver thereof or consent thereto; nor shall any single or partial exercise of any such right, power or privilege preclude any other or further exercise thereof or the exercise of any other right, power or privilege. The remedies herein provided are cumulative and not exclusive of any remedies provided by applicable law. SECTION 9.04. Indemnification. (a) Each of the Borrowers hereby --------------- jointly and severally agrees to indemnify and hold harmless each of the Agents, each of the Lenders and each of their respective affiliates and their respective officers, directors, employees, agents, representatives and advisors (each, an "INDEMNIFIED PARTY") from, and hold each of them harmless against, any and all claims, damages, losses, liabilities and reasonable expenses (including, without limitation, reasonable fees and expenses of counsel), joint or several, that may be incurred by or asserted or awarded against any Indemnified Party, in each case arising out of or in connection with or by reason of (including, without limitation, in connection with any investigation, litigation or proceeding or the preparation of a defense in connection therewith) (i) the Transaction (or any aspect thereof) or any similar transaction of Fox Kids or any of its Subsidiaries, (ii) the Facilities, the actual or proposed use of the proceeds of any Advances, 135 the Loan Documents or any of the other transactions contemplated thereby, (iii) any acquisition or proposed acquisition by Fox Kids or any of its Subsidiaries or Affiliates of all or any portion of the Equity Interests in, or substantially all of the property and assets of, any other Person or (iv) the actual or alleged presence of Hazardous Materials on any property of any of the Loan Parties or any of their respective Subsidiaries or any Environmental Action relating in any way to any of the Loan Parties or any of their respective Subsidiaries (collectively, the "INDEMNIFIABLE MATTERS"), except to the extent, in the case of any such Indemnified Party, that such claim, damage, loss, liability or expense is found in a final, nonappealable judgment by a court of competent jurisdiction to have resulted from such Indemnified Party's gross negligence or willful misconduct. In the case of any investigation, litigation or proceeding for which the indemnity under this Section 9.04(a) applies, such indemnity shall be effective whether or not such investigation, litigation or proceeding is brought by any of the Loan Parties, any of their respective directors, stockholders, partners, members or creditors or an Indemnified Party or any Indemnified Party is otherwise a party thereto and whether or not the Transaction (or any part thereof) or any of the other transactions contemplated hereby is consummated. Notwithstanding any of the foregoing provisions of this Section 9.04(a), in the case of any Indemnifiable Matter of any of the Lenders solely against one or more other Lenders (and not any Indemnifiable Matter by one or more Lenders against the Administrative Agent or one or more of the other Agents), none of the Borrowers shall be obligated to indemnify such Lender or any of its affiliates or any of its officers, directors, employees, agents, representatives or advisors for any claim, damage, loss, liability or expense resulting from such Indemnifiable Matter, except to the extent such claim, damage, loss, liability or expense is found in the final, nonappealable judgment of a court of competent jurisdiction to have resulted from the action, inaction, participation or contribution of any of the Loan Parties or any of their respective Affiliates or any of their respective officers, directors, stockholders, partners, members, employees, agents, representatives or advisors, and then only to the extent of their collective action, inaction, participation or contribution. (b) Promptly after receipt by any of the Indemnified Parties of notice of the commencement of any Indemnifiable Matter, such Indemnified Party shall, if indemnification therefor is to be sought from any or all of the Borrowers pursuant to subsection (a) of this Section 9.04, give notice to any of the Borrowers of the commencement of such Indemnifiable Matter; provided, however, that the failure of such Indemnified Party to give such notice to any of the Borrowers shall not relieve any of the Borrowers of any of their Obligations under this Section 9.04, unless, and then only to the extent that, such failure results in the forfeiture of rights or defenses and the Borrowers incur an increased indemnification obligation to such Indemnified Party under the terms of subsection (a) of this Section 9.04 on account of such failure. Notwithstanding the delivery of such notice to one or more of the Borrowers, such Indemnified Party may defend against such Indemnifiable Matter in any manner such Indemnified Party shall reasonably deem appropriate; provided that, in the event that any of the Borrowers shall notify such Indemnified Party, promptly following the delivery of such notice to such Borrower, that such Borrower is assuming the defense of such Indemnifiable Matter, then (i) so long as the Indemnifiable Matter referred to in such notice has not been commenced by any of the Loan Parties or any of their respective Affiliates or any of their officers, directors, stockholders, partners, members, employees, agents, representatives or advisors and (ii) unless in the reasonable opinion of counsel for such Indemnified Party (A) a conflict of interest between such Indemnified Party and any of the Loan Parties or any of their respective Affiliates may exist in respect of such Indemnifiable Matter and representation of both such Indemnified Party and any such Loan Party or any such Affiliate would be inappropriate or (B) there may be one or more legal defenses available to such Indemnified Party that are different from or in addition to, but in any such case are adverse to, any of the Loan Parties or any of their respective Affiliates, such Borrower (either individually or together with the other Borrowers) shall be entitled to 136 participate in and to assume the defense of such Indemnifiable Matter solely on the following terms and conditions: (1) any and all counsel selected by such Borrower or Borrowers to participate in the defense of any such Indemnifiable Matter shall be reasonably satisfactory to such Indemnified Party, and such Borrower or Borrowers shall be responsible for all of the fees and expenses of each such counsel; (2) such Indemnified Party shall have the right (but not any obligation) to retain separate co-counsel and shall have the right, but not the obligation, to assert any and all defenses, cross-claims and counterclaims that it may have, and the fees and expenses of any such co- counsel shall be at the expense of such Indemnified Party (except that such Borrower or Borrowers shall be responsible for the fees and expenses of the separate co-counsel (x) to the extent such Indemnified Party reasonably concludes that any of the counsel chosen by such Borrower or Borrowers to participate in the defense of any such Indemnifiable Matter has a conflict of interest, (y) if such Borrower or Borrowers do not employ counsel reasonably satisfactory to such Indemnified Party or (z) if such Borrower or Borrowers or its counsel does not at all times defend such Indemnifiable Matter vigorously and in good faith; and (3) such Borrower or Borrowers shall confirm (in a writing reasonably satisfactory to such Indemnified Party) that all of the liabilities and obligations with respect to such Indemnifiable Matter will, upon the election by such Borrower or Borrowers to participate in or assume the defense of such Indemnifiable Matter, be solely the joint and several liabilities and Obligations of the Borrowers, and such Borrower or Borrowers will not consent to the entry of any judgment or enter into any settlement with respect to such Indemnifiable Matter without providing reasonable prior notice to such Indemnified Party and, if such Indemnified Party does not exercise the rights afforded to it under the next succeeding proviso, without obtaining (in a writing reasonably acceptable to such Indemnified Party) a full and unconditional release and discharge of the applicable Indemnified Party from all liability and potential liability on claims that are the subject matter of such Indemnifiable Matter; provided, however, that, notwithstanding any of the foregoing provisions of this subclause (3), if the applicable Indemnified Party objects to the entry of any such judgment or any such settlement, such Indemnified Party may thereafter assume the defense of the Indemnifiable Matter and the Borrowers shall be released from their respective Obligations under subsection (a) of this Section 9.04 for all fees and expenses relating to such Indemnifiable Matter arising after such objection, and their respective liabilities and Obligations hereunder for other claims, damages, losses, liabilities and expenses relating to such Indemnifiable Matter shall be limited in dollar amount to the amount of the proposed judgment or settlement, as the case may be. In connection with the election by any of the Borrowers to participate in or assume the defense of any Indemnifiable Matter in accordance with the terms provided in this subsection (b), each of the Indemnified Parties subject thereto shall supply such Borrower with all such information reasonably requested thereby (and that is reasonably necessary or appropriate and would not, in the judgment of such Indemnified Party, be materially disadvantageous to such Indemnified Party) in order to cooperate in such Borrowers' participation in and assumption of the defense of such Indemnifiable Matter. (c) None of the Borrowers shall be liable to any of the Indemnified Parties for the settlement by such Indemnified Party of any pending or threatened litigation or proceeding for which such 137 Indemnified Party may seek indemnity under Section 9.04(a) without the prior written consent of such Borrower (which consent shall not be unreasonably withheld or delayed and shall be deemed to have been given if the Borrower to which such notice was provided has not objected to such settlement within 20 days after the date of notice thereto of such proposed settlement). In turn, none of the Borrowers or any of their respective Affiliates or their respective officers, directors, stockholders, partners, members, employees, agents, representatives or advisors shall effect the settlement of any such pending or threatened litigation or proceeding unless either (i) such settlement includes a full and unconditional release and discharge of each of the Indemnified Parties subject to such action or proceeding from all liability and potential liability on claims that are the subject matter of such action or proceeding or (ii) each of the Indemnified Parties subject to such action or proceeding shall give their prior written consent to the settlement thereof (which consent shall not be unreasonably withheld or delayed). (d) Upon payment in full in cash of any Indemnifiable Matter by or on behalf of any of the Borrowers to or on behalf of any of the Indemnified Parties, the applicable Borrower (or the Person making payment on its behalf) shall be subrogated to any claims that such Indemnified Party may have to seek reimbursement from any other Person relating to such Indemnifiable Matter; provided, however, that the applicable Borrower (or the Person making payment on its behalf) shall not exercise any rights of subrogation, reimbursement, contribution or indemnification that it may now or hereafter acquire against any of the Loan Parties or any of their respective Subsidiaries or against any of the Indemnified Parties until such time as all of the Advances and all of the other amounts owing by any of the Loan Parties under or in respect of the Loan Documents shall have been paid in full in cash, all of the Bank Hedge Agreements shall have expired or been terminated and all of the Commitments shall have expired or terminated. Each of the Indemnified Parties, if reasonably requested by and at the expense of any of the Borrowers, will execute and deliver to such Borrower appropriate documents, without recourse and without representation or warranty, necessary to evidence the transfer of subrogation to such Borrower of an interest in such claims resulting from the payment made by such Borrower under the indemnity set forth in subsection (a) of this Section 9.04. (e) Each of the Borrowers hereby also severally agrees that none of the Indemnified Parties shall have any liability (whether direct or in direct, in contract, tort or otherwise) to any of the Loan Parties or any of their respective Affiliates or their respective officers, directors, stockholders, partners, members, employees, agents, representatives or advisors, and each of the Borrowers hereby severally agrees not to assert any claim against any of the Indemnified Parties on any theory of liability, for special, indirect, consequential or punitive damages, arising out of or otherwise relating to the Transaction (or any aspect thereof), the Facilities, the actual or proposed use of the proceeds of any Advances, the Loan Documents or any of the other transactions contemplated thereby, except to the extent, in the case of any such Indemnified Party, that such claim, damage, loss, liability or expense is found in a final, nonappealable judgment by a court of competent jurisdiction to have resulted from such Indemnified Party's gross negligence or willful misconduct. SECTION 9.05. Costs and Expenses. (a) Each of the Borrowers hereby ------------------ agrees to pay, upon demand, (i) all reasonable and properly documented out-of- pocket costs and expenses of each of the Agents in connection with the preparation, execution, delivery, administration, modification and amendment of the Loan Documents (including, without limitation, (A) all reasonable due diligence, collateral review, syndication, transportation, computer, duplication, appraisal, audit, insurance, consultant, search, filing and recording fees and expenses and (B) the reasonable fees and expenses of counsel for the Agents (which shall include only one counsel in each applicable jurisdiction) with respect thereto, with respect to advising each of the Agents as to their respective rights and responsibilities, or 138 the perfection, protection or preservation of rights or interests, under the Loan Documents, with respect to negotiations with any of the Loan Parties or with other creditors of any of the Loan Parties or any of their respective Subsidiaries arising out of any Default or any events or circumstances that may give rise to a Default and with respect to presenting claims in or otherwise participating in or monitoring any bankruptcy, insolvency or other similar proceeding involving creditors' rights generally and any proceeding ancillary thereto) and (ii) all reasonable and properly documented out-of-pocket costs and expenses of the Agents and the Lenders in connection with the enforcement of the Loan Documents, whether through negotiations, in any action, suit or litigation, or in any bankruptcy, insolvency or other similar proceeding affecting creditors' rights generally or otherwise (including, without limitation, the reasonable fees and expenses of counsel for the Agents and the Lenders, collectively, with respect thereto (which shall include only one counsel in each applicable jurisdiction, each of which counsel shall be counsel selected by, and counsel for, the Administrative Agent, unless (i) any of the Lenders shall reasonably determine that a conflict of interest exists such that counsel for the Administrative Agent is precluded by applicable Requirements of Law or by standards of conduct from representing the Administrative Agent and the Lenders as a group, in which case each of the Borrowers hereby agrees to pay, upon demand, all reasonable and properly documented out-of-pocket fees and expenses of the minimum number of counsel necessary in the reasonable judgment of the Lenders to provide the Administrative Agent and each Lender with appropriate legal representation in connection with the enforcement of their respective rights under this Agreement and the other Loan Documents and (ii) any of the Lenders elects to pursue its rights and remedies under this Agreement and the other Loan Documents for nonpayment of any amounts due and payable hereunder or thereunder in a proceeding separate from that of the Administrative Agent and/or the other Lenders, in which case each of the Borrowers hereby agrees to pay, upon demand, all reasonable and properly documented out-of-pocket fees and expenses of one additional counsel for each such Lender in each of the applicable jurisdictions)). (b) If any payment of principal of, or Conversion of, any Eurodollar Rate Advance is made by any of the Borrowers to or for the account of any of the Lenders other than on the last day of the Interest Period for such Advance, as a result of a payment, repayment or Conversion pursuant to Section 2.08(b)(i) or 2.09(d), a prepayment pursuant to Section 2.05, acceleration of the maturity of the Notes pursuant to Section 7.01 or for any other reason, or by an Eligible Assignee to a Lender other than on the last day of the Interest Period for such Advance upon an assignment of rights and obligations under this Agreement pursuant to Section 9.08 as a result of a demand by Holdings pursuant to Section 9.08(a), such Borrower shall, upon demand by such Lender (with a copy of such demand to the Administrative Agent), pay to the Administrative Agent for the account of such Lender any amounts required to compensate such Lender for any additional losses (including losses of anticipated profits other than any amount attributable solely to the Applicable Margin), costs or expenses that it may reasonably incur as a result of such payment, including, without limitation, any loss, cost or expense incurred by reason of the liquidation or reemployment of deposits or other funds acquired by any of the Lenders to fund or maintain such Advance. (c) If any of the Loan Parties fails to pay when due any costs, expenses or other amounts payable by it under or in respect of any of the Loan Documents (including, without limitation, any reasonable fees and expenses of counsel or any indemnities), such amount may be paid on behalf of such Loan Party by the Administrative Agent or any of the Lenders, in its sole discretion. (d) Without prejudice to the survival of any other agreement of any of the Loan Parties under this Agreement or any of the other Loan Documents, the agreements and obligations of each of the Borrowers contained in Sections 2.09, 2.11 and 9.04 and this Section 9.05 shall survive the 139 payment in full of all principal, interest and all other amounts payable under this Agreement and any of the other Loan Documents. SECTION 9.06. Right of Setoff. Upon (a) the occurrence and during --------------- the continuance of any Event of Default and (b) the making of the request or the granting of the consent specified by Section 7.01 to authorize the Administrative Agent to declare the Notes due and payable pursuant to the provisions of Section 7.01, each of the Lenders and each of their respective Affiliates is hereby authorized at any time and from time to time, to the fullest extent permitted by applicable law, to set off and otherwise apply any and all deposits (general or special, time or demand, provisional or final) at any time held and other indebtedness at any time owing by such Lender or such Affiliate to or for the credit or the account of Holdings or any of the Borrowers against any and all of the Obligations of Holdings or any of the Borrowers now or hereafter existing under this Agreement and the Note or Notes, if any, held by such Lender, irrespective of whether such Lender shall have made any demand under this Agreement or such Note or Notes and although such obligations may be unmatured. Each of the Lenders hereby agrees to notify Holdings or the applicable Borrower promptly after any such setoff and application shall be made by such Lender or any of its Affiliates; provided, however, that the failure to give such notice shall not affect the validity of such setoff and application. The rights of each of the Lenders and each of their respective Affiliates under this Section 9.06 are in addition to other rights and remedies (including, without limitation, any other rights of setoff) that such Lender or any of its Affiliates may have. SECTION 9.07. Binding Effect. This Agreement shall become effective -------------- when it shall have been executed by Holdings, each of the Borrowers and the Administrative Agent and when the Administrative Agent shall have been notified by each of the Initial Lenders that such Initial Lender has executed it and, thereafter, shall be binding upon and inure to the benefit of, and be enforceable by, Holdings, each of the Borrowers, each of the Agents and each of the Lenders and their respective successors and assigns, except that neither Holdings nor any of the Borrowers shall have the right to assign their respective rights hereunder or any interest herein without the prior written consent of all of the Lenders. SECTION 9.08. Assignments and Participations. (a) Each of the ------------------------------ Lenders may, and, if demand is made by Holdings (following (i) a demand by such Lender for the payment of additional compensation pursuant to Section 2.09(a), 2.09(b) or 2.11, (ii) an assertion by such Lender pursuant to Section 2.09(c) or 2.09(d) that it is impractical or unlawful for such Lender to make Eurodollar Rate Advances or (iii) a refusal by such Lender to approve any amendment or waiver of, or consent to departure from, any of the terms or conditions of this Agreement or any of the other Loan Documents; provided that Holdings may not demand the replacement of one or more Lenders pursuant to this subclause (iii) holding, in the aggregate, more than 5% of the aggregate Commitments under both of the Facilities as of the date of any such proposed amendment, waiver or consent or the date of any such proposed demand), upon at least 30 days' notice (or, solely in the case of clause (iii) of this Section 9.08(a), upon at least five Business Days' prior notice) to such Lender and the Administrative Agent, each of the Lenders will, assign to one or more Persons all or a portion of its rights and obligations under this Agreement (including, without limitation, all or a portion of its Commitment or Commitments, the Advances owing to it and the Note or Notes held by it); provided, however, that: (A) each such assignment with respect to either of the Facilities shall be of a uniform, and not a varying, percentage of all rights and obligations under and in respect of such Facility; 140 (B) except in the case of an assignment to a Person that immediately prior to such assignment was a Lender or an assignment of all of a Lender's rights and obligations under either or both of the Facilities, the aggregate amount of the Commitments of the assigning Lender under both of the Facilities being assigned pursuant to each such assignment (determined as of the date of the Assignment and Acceptance with respect to such assignment) shall in no event be less than $10,000,000; (C) each such assignment shall be to an Eligible Assignee; (D) each such assignment made as a result of a demand by Holdings pursuant to this Section 9.08(a) shall be arranged by Holdings with the approval of the Administrative Agent, which approval shall not be unreasonably withheld or delayed, and shall be either an assignment of all of the rights and obligations of the assigning Lender under this Agreement or an assignment of a portion of such rights and obligations made concurrently with another such assignment or other such assignments that, in the aggregate, cover all of the rights and obligations of the assigning Lender under this Agreement; (E) no Lender shall be obligated to make any such assignment as a result of a demand by Holdings pursuant to this Section 9.08(a) unless and until such Lender shall have received one or more payments from one or more Eligible Assignees in an aggregate amount at least equal to the aggregate outstanding principal amount of all Advances owing to such Lender, together with accrued and unpaid interest thereon to the date of payment of such principal amount, and from the Borrowers and/or one or more Eligible Assignees in an aggregate amount equal to all other amounts payable to such Lender under this Agreement and the Notes (including, without limitation, any amounts owing to such Lenders under Sections 2.09, 2.11, 9.04 and 9.05); (F) except in the case of any assignment made as a result of a demand by Holdings pursuant to Section 9.08(a), the Lender assignor or the Administrative Agent shall have given Holdings at least two Business Days' prior notice of the intended assignment and the Person to which such assignment is proposed to be made; (G) the parties to each such assignment shall execute and deliver to the Administrative Agent, for its acceptance and recording in the Register, an Assignment and Acceptance, together with any Note or Notes subject to such assignment; and (H) the Lender assignor (or, if such assignment is being made pursuant to a demand by Holdings therefor under this Section 9.08(a), the Borrowers or the Lender assignee) shall pay to the Administrative Agent a processing and recordation fee of $3,500. (b) Upon such execution, delivery, acceptance and recording, from and after the effective date specified in such Assignment and Acceptance, (i) the assignee thereunder shall be a party hereto and, to the extent that rights and obligations hereunder have been assigned to it pursuant to such Assignment and Acceptance, have the rights and obligations of a Lender hereunder and (ii) the Lender assignor thereunder shall, to the extent that rights and obligations hereunder have been assigned by it pursuant to such Assignment and Acceptance, relinquish its rights (other than its rights under Sections 2.09, 2.11, 9.04 and 9.05 (and other similar provisions of the other Loan Documents that are specified under the terms of such other Loan Documents to survive the payment in full of the Obligations of the 141 Loan Parties under or in respect of the Loan Documents) to the extent any claim thereunder relates to an event arising prior to such assignment) and be released from its obligations under this Agreement (and, in the case of an Assignment and Acceptance covering all or the remaining portion of an assigning Lender's rights and obligations under this Agreement, such Lender shall cease to be a party hereto). (c) By executing and delivering an Assignment and Acceptance, the Lender assignor thereunder and the assignee thereunder confirm to and agree with each other and the other parties hereto as follows: (i) other than as provided in such Assignment and Acceptance, such assigning Lender makes no representation or warranty and assumes no responsibility with respect to any statements, warranties or representations made in or in connection with this Agreement or any of the other Loan Documents, or the execution, legality, validity, enforceability, genuineness, sufficiency or value of, or the perfection or priority of any lien or security interest created or purported to be created under or in connection with, this Agreement or any of the other Loan Documents, or any other instrument or document furnished pursuant hereto or thereto; (ii) such assigning Lender makes no representation or warranty and assumes no responsibility with respect to the financial condition of any of the Borrowers or any of the other Loan Parties or the performance or observance by any of the Borrowers or any of the other Loan Parties of any of their respective Obligations under or in respect of any of the Loan Documents, or any other instrument or document furnished pursuant thereto; (iii) such assignee confirms that it has received a copy of this Agreement, together with copies of the financial statements referred to in Section 4.01 and such other documents and information as it has deemed appropriate to make its own credit analysis and decision to enter into such Assignment and Acceptance; (iv) such assignee will, independently and without reliance upon any of the Agents, such assigning Lender or any of the other Lenders and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under this Agreement; (v) such assignee confirms that it is an Eligible Assignee; (vi) such assignee appoints and authorizes the Administrative Agent to take such action as an agent on its behalf and to exercise such powers and discretion under the Loan Documents as are delegated to the Administrative Agent by the terms hereof, together with such powers and discretion as are reasonably incidental thereto; and (vii) such assignee agrees that it will perform in accordance with their terms all of the obligations that by the terms of this Agreement are required to be performed by it as a Lender. (d) The Administrative Agent, acting for this purpose (but only for this purpose) as the agent of each of the Borrowers, shall maintain at its address set forth in Section 9.02 a copy of each Assignment and Acceptance delivered to and accepted by it and a register for the recordation of the names and addresses of the Lenders and the Commitment under each of the Facilities of, and principal amount of the Advances owing under each of the Facilities to, each of the Lenders from time to time (the 142 "REGISTER"). The entries in the Register shall be conclusive and binding for all purposes, absent manifest error, and Holdings, the Borrowers, the Administrative Agent and the Lenders shall treat each Person whose name is recorded in the Register as a Lender hereunder for all purposes of this Agreement. The Register shall be available for inspection by Holdings, any of the Borrowers, any of the Agents or any of the Lenders at any reasonable time and from time to time during normal business hours upon reasonable prior notice. (e) Upon its receipt of an Assignment and Acceptance executed by an assigning Lender and an assignee, together with any Note or Notes subject to such assignment, the Administrative Agent shall, if such Assignment and Acceptance has been completed and is in substantially the form of Exhibit C hereto, (i) accept such Assignment and Acceptance, (ii) record the information contained therein in the Register and (iii) give prompt notice thereof to the Appropriate Borrowers. In the case of any assignment by a Lender, within five Business Days after its receipt of such notice, each of the Appropriate Borrowers, at its own expense, shall execute and deliver to the Administrative Agent in exchange for the surrendered Note or Notes a new Note or new Notes from such Borrower payable to or to the order of such Eligible Assignee in an amount equal to the Commitment assumed by it under each of the Facilities pursuant to such Assignment and Acceptance and, if the assigning Lender has retained a Commitment under such Facility, a new Note or Notes from each such Appropriate Borrower payable to or to the order of the assigning Lender in an amount equal to the Commitment retained by it under such Facility. Each of the new Note or Notes shall be in an aggregate principal amount equal to the aggregate principal amount of such surrendered Note or Notes, shall be dated the effective date of such Assignment and Acceptance and shall otherwise be in substantially the form of Exhibit A-1 or Exhibit A-2 hereto, as appropriate. (f) Each of the Lenders may sell participations to one or more Persons (other than any of the Loan Parties or any of their respective Affiliates) in or to all or a portion of its rights and obligations under this Agreement (including, without limitation, all or a portion of its Commitment or Commitments, the Advances owing to it and the Note or Notes, if any, held by it); provided, however, that: (i) such Lender's obligations under this Agreement (including, without limitation, its Commitment or Commitments) shall remain unchanged; (ii) the aggregate amount of the Commitments of the participating Lender under both of the Facilities being sold in each such participation (determined as of the date such participation is effected) shall in no event be less than $5,000,000; (iii) such Lender shall remain solely responsible to the other parties hereto for the performance of such obligations; (iv) such Lender shall remain the holder of any such Note for all purposes of this Agreement; (v) the Loan Parties, the Administrative Agent, the other Agents and the other Lenders shall continue to deal solely and directly with such Lender in connection with such Lender's rights and obligations under this Agreement and the other Loan Documents; and 143 (vi) no participant under any such participation shall have any right to approve any amendment or waiver of any provision of any of the Loan Documents, or any consent to any departure by any of the Loan Parties therefrom, except to the extent that such amendment, waiver or consent would reduce the principal of, or interest on, the Notes or any fees or other amounts payable hereunder, in each case to the extent subject to such participation, postpone any date fixed for any payment of principal of, or interest on, the Notes or any fees or other amounts payable hereunder, in each case to the extent subject to such participation, or release all or substantially all of the Collateral. (g) Any of the Lenders may, in connection with any assignment or participation or proposed assignment or participation pursuant to this Section 9.08, disclose to the assignee or participant or proposed assignee or participant, any information relating to Fox Kids or any of its Subsidiaries, or to any aspect of the Transaction, furnished to such Lender by or on behalf of Fox Kids, Holdings or any of the Borrowers; provided, however, that, prior to any such disclosure, the assignee or participant or proposed assignee or participant shall agree to preserve the confidentiality of any Confidential Information received by it from such Lender on substantially the same terms as those set forth in Section 9.09. (h) Any of the Lenders may at any time create a security interest in all or any portion of its rights under this Agreement (including, without limitation, the Advances owing to it and the Note or Notes held by it) in favor of any Federal Reserve Bank in accordance with Regulation A of the Board of Governors of the Federal Reserve System. SECTION 9.09. Confidentiality. Neither any of the Agents nor any of --------------- the Lenders shall disclose any Confidential Information to any Person without the consent of Holdings, other than (a) to such Agent's or such Lender's respective Affiliates and their respective officers, directors, employees, agents, representatives, attorneys, auditors and other advisors on a confidential basis, (b) to actual or prospective Eligible Assignees and participants in each case on a confidential basis and otherwise in accordance with Section 9.08(g), (c) as required by any applicable Requirements of Law or by subpoena or any other judicial or other legal process, provided that solely with respect to this clause (c), such Agent or such Lender shall notify Holdings of the requirement or request that it disclose any such Confidential Information prior to doing so unless such notification is prohibited by any applicable Requirements of Law or judicial or legal process (although neither Holdings nor any other Person having any right or interest in such Confidential Information shall have any recourse against any such Agent or any such Lender for the failure to deliver such notice to Holdings), (d) to other Agents and Lenders and (e) as requested or required by any Governmental Authority or any state, federal or foreign authority or examiner regulating banks or banking. SECTION 9.10. Execution in Counterparts. This Agreement may be ------------------------- executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement. Delivery of an executed counterpart of a signature page to this Agreement by telecopier shall be effective as delivery of a manually executed counterpart of this Agreement. SECTION 9.11. Governing Law; Jurisdiction, Etc. (a) This Agreement -------------------------------- shall be governed by, and construed in accordance with, the laws of the State of New York, excluding (to the fullest extent a New York court would permit) any rule of law that would cause application of the laws of any jurisdiction other than the State of New York. 144 (b) Each of the parties hereto hereby irrevocably and unconditionally submits, for itself and its property and assets, to the nonexclusive jurisdiction of any New York state court or any federal court of the United States of America sitting in New York City, New York, and any appellate court from any thereof, in any action or proceeding arising out of or relating to this Agreement or any of the other Loan Documents to which it is a party, or for recognition or enforcement of any judgment in respect thereof, and each of the parties hereto hereby irrevocably and unconditionally agrees that all claims in respect of any such action or proceeding may be heard and determined in any such New York state court or, to the fullest extent permitted by applicable law, in any such federal court. Each of the parties hereto hereby irrevocably consents to the service of copies of any summons and complaint and any other process which may be served in any such action or proceeding by certified mail, return receipt requested, or by delivering a copy of such process to such party, at its address specified in Section 9.02, or by any other method permitted by applicable law. Each of the parties hereto hereby agrees that a final judgment in any such action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by applicable law. Nothing in this Agreement shall affect any right that any of the parties hereto may otherwise have to bring any action or proceeding relating to this Agreement or any of the other Loan Documents in the courts of any jurisdiction. (c) Each of the parties hereto irrevocably and unconditionally waives, to the fullest extent it may legally and effectively do so, any objection that it may now or hereafter have to the laying of venue of any action or proceeding arising out of or relating to this Agreement or any of the other Loan Documents to which it is a party in any New York state court or federal court. Each of the parties hereto hereby irrevocably waives, to the fullest extent permitted by applicable law, the defense of an inconvenient forum to the maintenance of such action or proceeding in any such court. SECTION 9.12. WAIVER OF JURY TRIAL. HOLDINGS, EACH OF THE BORROWERS, -------------------- EACH OF THE AGENTS AND EACH OF THE LENDERS IRREVOCABLY WAIVE ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM (WHETHER BASED ON CONTRACT, TORT OR OTHERWISE) ARISING OUT OF OR RELATING TO THIS AGREEMENT, ANY OF THE OTHER LOAN DOCUMENTS, ANY OF THE DOCUMENTS DELIVERED PURSUANT TO THE TERMS OF THE LOAN DOCUMENTS, THE ADVANCES, THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY OR THE ACTIONS OF ANY OF THE AGENTS OR ANY OF THE LENDERS IN THE NEGOTIATION, ADMINISTRATION, PERFORMANCE OR ENFORCEMENT THEREOF. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their respective officers thereunto duly authorized, as of the date first above written. GUARANTOR FOX KIDS HOLDINGS, LLC By: Fox Kids Worldwide, Inc., as its Managing Member /s/ JON FISSE By _____________________________ Name: Jon Fisse Title: 145 THE BORROWERS FCN HOLDING, INC. /s/ JON FISSE By _____________________________ Name: Jon Fisse Title: INTERNATIONAL FAMILY ENTERTAINMENT, INC. By /s/ JON FISSE _____________________________ Name: Jon Fisse Title: SABAN ENTERTAINMENT, INC. /s/ JON FISSE By _____________________________ Name: Jon Fisse Title: THE ADMINISTRATIVE AGENT CITICORP USA, INC., as the Administrative Agent /s/ JUDITH FISHLOW MINTER By _____________________________ Name: Judith Fishlow Minter Title: Attorney-in-Fact THE CO-ARRANGERS CITICORP SECURITIES, INC., as Co-Arranger /s/ JUDITH FISHLOW MINTER By _____________________________ Name: Judith Fishlow Minter Title: Vice President 146 CHASE SECURITIES, INC., as Syndication Agent and Co-Arranger /s/ JOAN M. FITZGIBBON By _________________________________ Name: Joan M. Fitzgibbon Title: Managing Director BANKBOSTON, N.A., as Documentation Agent and Co-Arranger /s/ DAVID B. HERTER By _________________________________ Name: David B. Herter Title: Managing Director THE INITIAL LENDERS CITICORP USA, INC. /s/ JUDITH FISHLOW MINTER By _________________________________ Name: Title: BANKBOSTON, N.A. /s/ DAVID B. HERTER By _________________________________ Name: David B. Herter Title: Managing Director THE CHASE MANHATTAN BANK /s/ JOHN P. HALTMAIER By _________________________________ Name: JOHN P. HALTMAIER Title: VICE PRESIDENT 147 BANK OF AMERICA NT & SA, as Managing Agent /s/ CARL F. SALAS By _________________________________ Name: CARL F. SALAS Title: VICE PRESIDENT THE BANK OF NOVA SCOTIA, as Managing Agent /s/ MARGOT C. BRIGHT By _________________________________ Name: MARGOT C. BRIGHT Title: AUTHORIZED SIGNATORY FLEET BANK, N.A., as Managing Agent /s/ TANYA M. CROSSLEY By _________________________________ Name: TANYA M. CROSSLEY Title: VICE PRESIDENT THE INDUSTRIAL BANK OF JAPAN, LIMITED, LOS ANGELES AGENCY, as Managing Agent /s/ VICENTE L. TIMIRAOS By _________________________________ Name: VICENTE L. TIMIRAOS Title: SVP & SR. MGR 148 NATIONSBANK OF TEXAS, N.A., as Managing Agent /s/ DAVID J. RABBITT By _________________________________ Name: David J. Rabbitt Title: VICE PRESIDENT TORONTO-DOMINION (TEXAS), INC., as Managing Agent /s/ FREDERIC D. HAWLEY By _________________________________ Name: FREDERIC HAWLEY Title: VICE PRESIDENT SOCIETE GENERALE, NEW YORK BRANCH, as Co-Agent /s/ ELAINE KHALIL By _________________________________ Name: ELAINE KHALIL Title: VICE PRESIDENT THE BANK OF NEW YORK /s/ STEPHEN M. NETTLER By _________________________________ Name: STEPHEN M. NETTLER Title: ASSISTANT VICE PRESIDENT BANQUE NATIONALE DE PARIS /s/ NUALA MARLEY By _________________________________ Name: NUALA MARLEY Title: VICE PRESIDENT By /s/ BRIAN M. FOSTER _________________________________ Name: BRIAN M. FOSTER Title: VICE PRESIDENT 149 THE MITSUBISHI TRUST & BANKING CORPORATION, LOS ANGELES AGENCY /s/ YASUSHI SATOMI By _________________________________ Name: YASUSHI SATOMI Title: SENIOR VICE PRESIDENT THE SUMITOMO BANK, LIMITED /s/ GORO HIRAI By _________________________________ Name: GORO HIRAI Title: JOINT GENERAL MANAGER CRESTAR BANK /s/ J. ERIC MILLHAM By _________________________________ Name: J. ERIC MILLHAM Title: VICE PRESIDENT THE DAI-ICHI KANGYO BANK, LIMITED /s/ NANCY STENGEL By _________________________________ Name: NANCY STENGEL Title: ASST. VICE PRESIDENT THE FUJI BANK, LIMITED, LOS ANGELES AGENCY /s/ MASAHITO FUKUDA By: _________________________________ Name: MASAHITO FUKUDA Title: JOINT GENERAL MANAGER EX-10.32 4 LETTER AMENDMENT NO. 1 TO AMENDED CREDIT AGREEMENT Exhibit 10.32 LETTER AMENDMENT NO. 1 Dated as of November 18, 1997 To the banks, financial institutions and other institutional lenders (collectively, the "LENDERS") parties to the Credit Agreement referred to below, to Citicorp USA, Inc., as administrative agent, (the "ADMINISTRATIVE AGENT") for such Lenders and the other Secured Parties referred to therein, and to Citicorp Securities, Inc., Chase Securities, Inc. and BankBoston, N.A. as Co-Arrangers for the Facilities referred to therein. Ladies and Gentlemen: We refer to the Credit Agreement dated as of October 28, 1997 (the "CREDIT AGREEMENT") among the undersigned and you. Capitalized terms not otherwise defined in this Letter Amendment have the same meanings as specified in the Credit Agreement. We hereby request that the Lenders agree to extend the date on which the Applicable Margin and the Applicable Percentage would increase if outstanding Term Advances are not prepaid and Term Commitments are not reduced with the application of Net Cash Proceeds from certain asset sales, which date is contained in the proviso of each of the definitions of "Applicable Margin" and "Applicable Percentage", from November 18, 1997 to December 4, 1997. The Lenders have indicated their willingness, on the terms and conditions stated below, to so agree. Accordingly, it is hereby agreed by the Lenders and us that Section 1.01 of the Credit Agreement is, effective as of the date of this Letter Amendment, amended by deleting the date "November 18, 1997" contained in the proviso of each of the definitions of "Applicable Margin" and "Applicable Percentage" set forth therein, and substituting therefor the date "December 4, 1997". This Letter Amendment shall become effective as of the date first above written when, and only when, on or before November 21, 1997 (or such later date as the Administrative Agent, the Borrowers and Holdings shall agree, but in any event on or before November 30, 1997) the Administrative Agent shall have received counterparts of this Letter Amendment executed by the undersigned and all of the Lenders or, as to any of the Lenders, advice satisfactory to the Administrative Agent that such Lender has executed this Letter Amendment, 2 and the consent attached hereto executed by each Loan Party (other than the Borrowers and Holdings). This Letter Amendment is subject to the provisions of Section 9.01 of the Credit Agreement. On and after the effectiveness of this Letter Amendment, each reference in the Credit Agreement to "this Agreement", "hereunder", "hereof" or words of like import referring to the Credit Agreement, and each reference in the Notes and each of the other Loan Documents to "the Credit Agreement", "thereunder", "thereof" or words of like import referring to the Credit Agreement, shall mean and be a reference to the Credit Agreement, as amended by this Letter Amendment. The Credit Agreement, the Notes and each of the other Loan Documents, as specifically amended by this Letter Amendment, are and shall continue to be in full force and effect and are hereby in all respects ratified and confirmed. Without limiting the generality of the foregoing, the Collateral Documents and all of the Collateral described therein do and shall continue to secure the payment of all Obligations of the Loan Parties under the Loan Documents, in each case as amended by this Letter Amendment. The execution, delivery and effectiveness of this Letter Amendment shall not, except as expressly provided herein, operate as a waiver of any right, power or remedy of any Lender or the Administrative Agent under any of the Loan Documents, nor constitute a waiver of any provision of any of the Loan Documents. If you agree to the terms and provisions hereof, please evidence such agreement by executing and returning at least one counterpart of this Letter Amendment via facsimile and at least five original counterparts of this Letter Amendment, in each case to the attention of Anna Dodson-Csuti, c/o Shearman & Sterling, 599 Lexington Avenue, New York, NY 10022-6069, facsimile no. (212) 848-7179. This Letter Amendment may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement. Delivery of an executed counterpart of a signature page to this Letter Amendment by telecopier shall be effective as delivery of a manually executed counterpart of this Letter Amendment. 3 This Letter Amendment shall be governed by, and construed in accordance with, the laws of the State of New York. Very truly yours, FOX KIDS HOLDINGS, LLC, as Guarantor By: Fox Kids Worldwide, Inc., as its Managing Member By /s/ HAIM SABAN -------------------------------------- Name: Title: FCN HOLDING, INC., as Borrower By /s/ JAY ITZKOWITZ -------------------------------------- Name: Title: INTERNATIONAL FAMILY ENTERTAINMENT, INC., as Borrower By /s/ HAIM SABAN -------------------------------------- Name: Title: SABAN ENTERTAINMENT, INC., as Borrower By /s/ HAIM SABAN -------------------------------------- Name: Title: 4 Agreed by each of the following Lenders as of the date first above written: CITICORP USA, INC. By /s/ JUDITH FISHLOW MINTER ---------------------------------- Name: Judith Fishlow Minter Title: Attorney-in-Fact BANKBOSTON, N.A. By /s/ ROBERT F. MILORDI ---------------------------------- Name: Robert F. Milordi Title: Managing Director THE CHASE MANHATTAN BANK By /s/ JOHN P. HALTMAIER ---------------------------------- Name: John P. Haltmaier Title: Vice President BANK OF AMERICA NT & SA By /s/ CARL F. SALAS ---------------------------------- Name: Carl F. Salas Title: Vice President THE BANK OF NOVA SCOTIA By /s/ Signed - Illegible Signature ---------------------------------- Name: Title: 5 FLEET BANK, N.A. By /s/ TANYA CROSSLEY ---------------------------------- Name: Tanya M. Crossley Title: Vice President THE INDUSTRIAL BANK OF JAPAN, LIMITED, LOS ANGELES AGENCY By /s/ STEVEN SALVOLDELLI ---------------------------------- Name: Steven Savoldelli Title: Vice President NATIONSBANK OF TEXAS, N.A., By /s/ DANIEL J. RABBITT ---------------------------------- Name: Daniel J. Rabbitt Title: Vice President TORONTO-DOMINION (TEXAS), INC., By /s/ FREDERIC B. HAWLEY ---------------------------------- Name: Frederic Hawley Title: Vice President SOCIETE GENERALE, NEW YORK BRANCH, By /s/ ELAINE KHALIL ---------------------------------- Name: Elaine Khalil Title: Vice President 6 THE BANK OF NEW YORK By /s/ STEPHEN M. NETTLER ---------------------------------- Name: Stephen M. Nettler Title: Assistant Vice President BANQUE NATIONALE DE PARIS By /s/ NUALA MARLEY ---------------------------------- Name: Nuala Marley Title: Vice President By /s/ BRIAN M. FOSTER ---------------------------------- Name: Brian M. Foster Title: Vice President THE MITSUBISHI TRUST AND BANKING CORPORATION, LOS ANGELES AGENCY By /s/ YASUSHI SATOMI ---------------------------------- Name: Yasushi Satomi Title: Senior Vice President THE SUMITOMO BANK, LIMITED By /s/ Signed - Illegible Signature ---------------------------------- Name: Title: CRESTAR BANK By /s/ J. ERIC MILLHAM/LBM ---------------------------------- Name: J. Eric Millham Title: Vice President 7 THE DAI-ICHI KANGYO BANK, LIMITED By /s/ NANCY STENGEL ---------------------------------- Name: Nancy Stengel Title: AVP THE FUJI BANK, LIMITED, LOS ANGELES AGENCY By: /s/ MASAHITO FUKUDA ---------------------------------- Name: Masahito Fukuda Title: Joint General Manager EX-10.45 5 EXCHANGE AGREEMENT DATED 8/1/97 EXHIBIT 10.45 EXCHANGE AGREEMENT ------------------ EXCHANGE AGREEMENT, dated August 1, 1997 (this "Agreement"), among News Publishing Australia Limited, a Delaware corporation ("NPAL"), Liberty Media Corporation, a Delaware corporation ("Liberty"), and Liberty IFE, Inc., a Colorado corporation and a wholly owned subsidiary of Liberty ("LIFE"). RECITALS -------- 1. Liberty, LIFE and Fox Kids Worldwide, Inc., a Delaware corporation ("Fox Kids"), are parties to a Contribution and Exchange Agreement, dated as of June 11, 1997 and amended as of the date hereof (the "Contribution Agreement"), pursuant to which LIFE has agreed, subject to the terms and conditions of the Contribution Agreement, to contribute securities of International Family Entertainment, Inc. owned by LIFE (the "IFE Securities") to Fox Kids in exchange for shares of Fox Kids Series A Preferred Stock, par value $.001 per share (the "Fox Kids Preferred Stock"). 2. Liberty and LIFE have entered into the Contribution Agreement, and are willing to accept the Fox Kids Preferred Stock in exchange for the IFE Securities on the terms and subject to the conditions of the Contribution Agreement, only if LIFE and any subsequent holder of shares of Fox Kids Preferred Stock has the right to exchange its shares of Fox Kids Preferred Stock for shares of NPAL Preferred Stock following the occurrence of (i) an Event of Default under the Certificate of Designations for the Fox Kids Preferred Stock or (ii) certain other events described herein. 3. This Agreement sets forth the terms and conditions on which LIFE and any subsequent holder of shares of Fox Kids Preferred Stock shall have the right to cause NPAL to exchange the shares of Fox Kids Preferred Stock owned by LIFE or any such subsequent holder for shares of NPAL Preferred Stock, and constitutes the "Exchange Agreement" referred to in Section 9.6 of the Contribution Agreement. AGREEMENT --------- In consideration of the contribution by LIFE of the IFE Securities to Fox Kids in exchange for Fox Kids Preferred Stock, which contribution NPAL hereby agrees shall benefit NPAL, the parties hereto agree as follows: 1. Definitions. ----------- "Affiliate" means, when used with reference to a specified person, any person that directly or indirectly through one or more intermediaries controls, or is under common control with, such specified person. "Exchange Date" has the meaning set forth in Section 3.2 hereof. "Exchange Event" means either of the following: (i) the receipt by the holders of shares of Fox Kids Preferred Stock of written notice from Fox Kids of any Liquidation pursuant to Section 5 of the Fox Kids Certificate of Designations; and (ii) any receivership, insolvency, bankruptcy, assignment for the benefit of creditors, reorganization, arrangement, composition or readjustment of debt or other similar proceedings affecting Fox Kids or its assets. "Fox Kids Certificate of Designations" means the Certificate of Designations for the Fox Kids Preferred Stock filed with the Delaware Secretary of State on the date hereof, as amended from time to time in accordance with the terms thereof. "Fox Kids Event of Default" means an "Event of Default" as defined under Section 8 of the Fox Kids Certificate of Designations. "NPAL Certificate of Amendment" means the Certificate of Amendment to the NPAL Certificate of Incorporation authorizing the NPAL Preferred Stock and filed with the Delaware Secretary of State on the date hereof, as amended from time to time in accordance with the terms thereof. "NPAL Preferred Stock" means the Preferred Stock, par value $.001 per share, of NPAL. Capitalized terms not otherwise defined herein have the meanings assigned thereto in the Fox Kids Certificate of Designations. 2. Representations and Warranties of NPAL. NPAL represents and warrants -------------------------------------- to Liberty, LIFE and each subsequent holder of shares of Fox Kids Preferred Stock as follows: 2.1 Authorization. NPAL has the requisite corporate power and authority to ------------- enter into and carry out the terms of this Agreement. All necessary corporate action on the part of NPAL to authorize and approve the due execution, delivery and performance of this Agreement have been taken. This Agreement has been duly executed and delivered by NPAL and constitutes its valid and binding obligation, enforceable against it in accordance with its terms. 2.2 The NPAL Preferred Stock. The NPAL Certificate of Amendment has been ------------------------ approved by the Board of Directors and the sole stockholder of NPAL, and the NPAL Certificate of Amendment has been filed with the Delaware Secretary of State. The authorized share capital of NPAL includes 500,000 shares of NPAL Preferred Stock, and NPAL has no other authorized shares of preferred stock. Each share of NPAL Preferred Stock, when received upon valid exercise of the exchange right set forth in Section 3 of this Agreement by a holder of Fox Kids 2 Preferred Stock, will have all of the preferences and relative participating, optional and other special rights, qualifications, limitations and restrictions set forth in the NPAL Certificate of Amendment and will be duly and validly issued, fully paid and non-assessable. The NPAL Board of Directors has reserved all 500,000 shares of NPAL Preferred Stock for issuance in exchange for up to an equal number of shares of Fox Kids Preferred Stock. 3. Exchange Covenants of NPAL. -------------------------- 3.1 Right to Exchange. At any time after the occurrence of a Fox Kids ----------------- Event of Default or an Exchange Event and unless previously redeemed, each holder of shares of Fox Kids Preferred Stock shall have the right, but not the obligation, to cause NPAL to exchange all, but not less than all, of such holder's shares of Fox Kids Preferred Stock for shares of NPAL Preferred Stock, on a one-for-one basis. The right to exchange shares of Fox Kids Preferred Stock called for redemption shall terminate immediately prior to the close of business on the date the full redemption price is paid for such shares under the terms of the Fox Kids Certificate of Designations. 3.2 Mechanics of Exchange (a) In order to exchange shares of Fox Kids --------------------- Preferred Stock, the holder thereof shall surrender the certificates evidencing the shares of Fox Kids Preferred Stock to be exchanged to NPAL at its principal offices at c/o News America Publishing Incorporated, 1211 Avenue of the Americas, New York, New York 10036, Attention: Office of the General Counsel (or such other address as the record holders of shares of Fox Kids Preferred Stock may be notified of in accordance with Section 15 hereof), duly endorsed to NPAL or in blank (or accompanied by duly executed instruments of transfer to NPAL or in blank), together with written notice of exchange (an "Exchange Notice") specifying the number of shares of Fox Kids Preferred Stock being exchanged and specifying the name or names (with addresses) in which the certificate or certificates representing the NPAL Preferred Stock deliverable on such exchange are to be registered. Each exchange shall be deemed to have been effected immediately prior to the close of business on the date (the "Exchange Date") on which all of the requirements for such exchange set forth in this Agreement (including without limitation that set forth in Section 8 hereof) shall have been satisfied. If any transfer is involved in the issuance or delivery of any certificate or certificates for shares of NPAL Preferred Stock in a name other than that of the registered holder of the shares of Fox Kids Preferred Stock surrendered for exchange, such holder shall also deliver to NPAL a sum sufficient to pay all taxes, if any, payable in respect of such transfer or evidence satisfactory to NPAL that such taxes have been paid. Except as provided in the immediately preceding sentence, NPAL shall pay any issue, stamp or other similar tax in respect of such issuance or delivery. An Exchange Notice may be revoked at any time prior to the close of business on the Exchange Date. (b) As promptly as practicable (but in any event within two Business Days) after the Exchange Date, NPAL, in accordance with the provisions of this Section 3, shall issue and deliver at the principal office of NPAL specified in Section 3.2(a), to the holder of the shares of Fox Kids Preferred Stock so surrendered for exchange, or on his or her written order, a certificate 3 or certificates for the number of full shares of NPAL Preferred Stock issuable upon exchange of such shares in accordance with the provisions of this Section 3. 3.3 Effect of Exchange. The Person in whose name the certificate for ------------------ shares of NPAL Preferred Stock is issued, upon exchange in accordance with this Section 3, shall be treated for all purposes as the stockholder of record of such shares of NPAL Preferred Stock as of the close of business on the Exchange Date. Upon the valid and effective exchange of shares of Fox Kids Preferred Stock for an equal number of shares of NPAL Preferred Stock, the rights of the holder of such shares of Fox Kids Preferred Stock, as a holder thereof, shall cease. 4. Reservation of Shares. NPAL covenants and agrees with Liberty, LIFE --------------------- and each subsequent holder of shares of Fox Kids Preferred Stock, for so long as any shares of Fox Kids Preferred Stock are outstanding, to reserve and keep available at all times, free of preemptive rights and any liens or adverse claims, out of the aggregate of its authorized but unissued shares of NPAL Preferred Stock, sufficient shares of NPAL Preferred Stock for the purposes of satisfying its obligation to exchange shares of NPAL Preferred Stock for shares of Fox Kids Preferred Stock in accordance with the terms of this Agreement. 5. Issuance of NPAL Preferred Stock. NPAL shall not issue any shares of -------------------------------- NPAL Preferred Stock other than in exchange for shares of Fox Kids Preferred Stock in accordance with the terms of this Agreement. 6. No Amendments to NPAL Certificate of Incorporation. NPAL covenants and -------------------------------------------------- agrees, for so long as any shares of Fox Kids Preferred Stock are outstanding, not to amend, alter or modify the certificate of incorporation of NPAL in a manner that would adversely affect the powers, preferences, or rights of a holder of NPAL Preferred Stock as set forth in the NPAL Certificate of Amendment on the date hereof. 7. Third Party Beneficiaries. All of NPAL's obligations under this ------------------------- Agreement shall be directly enforceable by Liberty, LIFE and any subsequent holder from time to time of the Fox Kids Preferred Stock. Each such subsequent holder of Fox Kids Preferred Stock is an intended third-party beneficiary of this Agreement. 8. H-S-R Approvals. It shall be a condition of any exchange of Fox Kids --------------- Preferred Stock for NPAL Preferred Stock pursuant hereto that the requirements of the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "H- S-R Act"), be complied with. If a holder of Fox Kids Preferred Stock (or any Affiliate thereof) is required to file a notification and report form under the H-S-R Act before it may exchange such shares for shares of NPAL Preferred Stock (an "H-S-R Holder"), then NPAL shall promptly provide to such H-S-R Holder, and in any event within 5 Business Days after receipt of such H-S-R Holder's request therefor, all information concerning NPAL and its Affiliates as may be required for such H-S-R Holder (or such Affiliate) to complete its notification and report form. NPAL shall, or cause its appropriate Affiliate to, file an appropriate notification and report form under the H-S-R Act within 5 4 Business Days after the date that such H-S-R Holder requests that such report be filed, and NPAL shall, or shall cause such Affiliate to, supply promptly any additional information and documentary material that may be requested pursuant to the H-S-R Act. The Exchange Date with respect to any exchange of Fox Kids Preferred Stock shall not occur prior to such time as the waiting period under the H-S-R Act shall have expired or been terminated. A holder of Fox Kids Preferred Stock shall not be required to make any filings under the H-S-R Act, and expiration or termination of the waiting period under the H-S-R Act shall not be a condition to an exchange by a holder of Fox Kids Preferred Stock hereunder, if such holder delivers to NPAL an opinion of counsel, in form reasonably acceptable to NPAL, that no filings are required under the H-S-R Act before such holder may effect an exchange of all of its shares of Fox Kids Preferred Stock for shares of NPAL Preferred Stock hereunder. 9. Successors and Assigns. All covenants and agreements contained in this ---------------------- Agreement shall bind the successors (whether by merger, share exchange, asset purchase or otherwise), assigns, receivers, trustees and representatives of NPAL and shall inure to the benefit of Liberty, LIFE and all subsequent holders of the Fox Kids Preferred Stock. NPAL shall not assign its rights or delegate its obligations hereunder without the prior approval of the holders of at least 66 2/3% of the shares of Fox Kids Preferred Stock then outstanding, and any purported assignment or delegation without such approval shall be void ab initio. - -- ------ 10. Amendments; Waivers. (a) This Agreement may only be amended with the ------------------- prior approval of the holders of at least 66 2/3% of the shares of Fox Kids Preferred Stock then outstanding, and any purported amendment without such approval shall be void ab initio. -- ------ (b) Each of the provisions of this Agreement may be waived, in whole or in part, or the application of all or any part of such provisions in any particular circumstance or generally may be waived, in each case only with the prior approval of the holders of at least 66 2/3% of the shares of Fox Kids Preferred Stock then outstanding, and any purported waiver without such approval shall be void ab initio. -- ------ 11. Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED AND ------------- INTERPRETED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT GIVING EFFECT TO THE CONFLICT OF LAWS PRINCIPLES THEREOF. 12. Severability. If any term or other provision of this Agreement is ------------ invalid, illegal or incapable of being enforced by any rule of law or public policy, all other terms and provisions of this Agreement shall nonetheless remain in full force and effect. Upon any such determination that a term or other provision is invalid, illegal or incapable of being enforced, the parties shall negotiate in good faith to modify this Agreement so as to effect the original intent of the parties as closely as possible to the fullest extent permitted by applicable law in an acceptable manner to the end that the transactions contemplated hereby are fulfilled to the extent possible. 5 13. Delivery of Agreement. NPAL shall deliver a copy of this Agreement, --------------------- without charge, to each holder of shares of Fox Kids Preferred Stock that shall request a copy of this Agreement. 14. Specific Performance. Without intending to limit the remedies -------------------- available to Liberty, LIFE or any subsequent holder of shares of Fox Kids Preferred Stock, NPAL acknowledges and agrees that a violation by NPAL of any terms of this Agreement will cause such Persons irreparable injury for which an adequate remedy at law is not available. Therefore, the parties agree that Liberty, LIFE and any subsequent holder of shares of Fox Kids Preferred Stock shall be entitled to an injunction, restraining order or other form of equitable relief from any court of competent jurisdiction compelling NPAL, its successors and assigns, to specifically perform, and restraining such party from committing any breach of, or threatened breach of, any provisions of this Agreement. 15. Notices. Any notice, request or other communication required or ------- permitted to be given hereunder to NPAL shall be given in writing by delivering the same against receipt therefor by registered mail, hand delivery, facsimile transmission (confirmed by registered mail) or telex, addressed to NPAL, as follows (and if so given, shall be deemed given when mailed; upon receipt of facsimile confirmation, if sent by facsimile transmission; or upon receipt of an answer-back, if sent by telex): c/o News America Publishing Incorporated 1211 Avenue of the Americas New York, New York 10036 Attention: Office of the General Counsel Telecopy: (212) 768-2027 or to such other address or telecopy number as the holders of Fox Kids Preferred Stock may be notified of by NPAL. Any notice, request or other communication required or permitted to be given hereunder to the holders of shares of Fox Kids Preferred Stock shall be given by NPAL in the same manner as notices are sent by Fox Kids to the holders of shares of Fox Kids Preferred Stock under the Fox Kids Certificate of Designations. 6 16. Entire Agreement. This Agreement represents the entire understanding ---------------- of the parties with reference to the matters set forth herein. This Agreement supersedes all prior negotiations, discussions, correspondence, communications and prior agreements among the parties relating to the subject matter hereof. Dated: August 1, 1997 NEWS PUBLISHING AUSTRALIA LIMITED By: /s/ Paula Wardynski ---------------------------------- Name: Paula Wardynski Title: Vice President LIBERTY MEDIA CORPORATION By: /s/ David Koff ---------------------------------- Name: David Koff Title: Vice President LIBERTY IFE, INC. By: /s/ David Koff ---------------------------------- Name: David Koff Title: Vice President 7 EX-10.47 6 SUBORDINATED NOTE AGREEMENT DATED 7/31/97 EXHIBIT 10.47 THE OBLIGATIONS EVIDENCED HEREBY ARE SUBORDINATED IN THE MANNER AND TO THE EXTENT SET FORTH IN SECTION 8 HEREOF. EACH HOLDER OF THIS NOTE, BY ITS ACCEPTANCE HEREOF, SHALL BE BOUND BY THE SUBORDINATION PROVISIONS OF THIS AGREEMENT. SUBORDINATED NOTE AGREEMENT --------------------------- THIS SUBORDINATED NOTE AGREEMENT is made the 31 st day of July, 1997, by and among FOX BROADCASTING COMPANY, a Delaware Corporation ("Lender"), FOX KIDS WORLDWIDE, INC. (together with any successors or assigns, the "Borrower"), a Delaware corporation, and CITICORP USA, INC., as administrative agent under the Senior Loan Agreement (as hereinafter defined). WHEREAS, Lender has agreed to loan to Borrower, and Borrower has agreed to borrow from Lender, $104,573,000, upon the terms and subject to the conditions set forth herein. NOW, THEREFORE, in consideration of the mutual covenants and agreements contained herein, the parties hereto agree as follows: ARTICLE 1. GENERAL DEFINITIONS ------------------- 1.1 Defined Terms. When used herein, the following terms shall have the ------------- following meanings: Affiliate - when used in reference to any specified Person, any Person --------- that directly or indirectly through one or more intermediaries, controls or is controlled by, or is under common control with, the specified Person. Agreement - this Subordinated Note Agreement, as the same may be modified --------- or amended from time to time. Business Day - a day on which the Federal Reserve Bank of New York is ------------ open for business in New York, New York. Closing Date - July 31, 1997. ------------ Code - the Internal Revenue Code of 1986, as amended. ---- Dollars and the symbol $ - lawful money of the United States of America. ------- - Event of Default - as defined in Section 7.1 of this Agreement. ---------------- GAAP - U.S. generally accepted accounting principles, consistently ---- applied. Indebtedness - as applied to any Person, means: (a) all indebtedness for ------------ borrowed money; (b) that portion of obligations with respect to capital leases that is properly classified as a liability on a balance sheet in conformity with GAAP; (c) notes payable and drafts accepted representing extensions of credit whether or not representing obligations for borrowed money; (d) any obligation owed for all or any part of the deferred purchase price of property or services if the purchase price is due more than six (6) months from the date the obligation is incurred or is evidenced by a note or similar written instrument; and (e) all indebtedness secured by any Lien on any property or asset owned or held by that Person regardless of whether the indebtedness secured thereby shall have been assumed by that Person or is nonrecourse to the credit of that Person. Indemnities- as defined in Section 9.1 of this Agreement. ----------- Interest- as defined in Section 3.1 (A) of this Agreement. -------- Insolvency Laws - as defined in Section 8.1 of this Agreement. --------------- Insolvency Proceedings - as defined in Section 8.1 of this Agreement. ---------------------- Interest Payment Date - commencing on September 30, 1997, and each --------------------- successive December 31, March 31, June 30 and September 30 on which the Loan is outstanding. Lien - any mortgage, deed of trust, pledge, lien, security interest, ---- charge or other encumbrance or security arrangement of any nature whatsoever, including but not limited to any conditional sale or title retention arrangement, and any assignment, deposit arrangement or lease intended as, or having the effect of, security. Loan - as defined in Section 2.1 of this Agreement. ---- Loan Documents - this Agreement, the Note, and any and all agreements, -------------- instruments and documents executed therewith. Maturity Date - as defined in Section 2.2 of this Agreement. ------------- Note - the subordinated promissory note or notes to be made by Borrower ---- on the Closing Date in favor of Lender to evidence the Loan, which shall be in the form of Exhibit A annexed hereto, and any note or notes issued in replacement or substitution therefor, as any such note or notes may be further amended, modified, or supplemented from time to time after the execution and delivery hereof. 2 Obligations - (i) the obligations of Borrower to pay, as and when due and ----------- payable (by scheduled maturity or otherwise), all amounts from time to time owing by it in respect of any Loan Document, whether for principal, Interest (including, without limitation, all Interest that accrues after the commencement of any case, proceeding or other action relating to any Insolvency Proceeding of Borrower), fees, indemnification payments, contract causes of action, costs, expenses or otherwise and (ii) the obligations of Borrower to perform or observe all of its other obligations from time to time existing under any Loan Document. Person - an individual, partnership, association, corporation, limited ------ liability company, joint stock or other company, entity, trust or unincorporated organization, or a government or agency or political subdivision thereof Prepayment Date - any date upon which the Loan is being prepaid, in whole ---------------- or in part, pursuant to Section 3.2 of this Agreement. Principal Amount - as defined in Section 2.1 of this Agreement. ----------------- Senior Agent - Citicorp USA, Inc., as administrative agent under the ------------ Senior Loan Agreement, and any successor or assignee thereof or any authorized representative of the holders of a majority of the outstanding amount of the Senior Obligations. Senior Lenders - any and all lenders that provide financial -------------- accommodation, advances and/or credit under the Senior Loan Agreement. Senior Loan Agreement- the Credit Agreement, dated as of August 1, 1997, --------------------- by and among Borrower, FCN Holding, Inc., Fox Kids Merger Corporation and Saban Entertainment, Inc., as borrowers; Citicorp USA, Inc., as administrative agent; Citicorp Securities, Inc., as arranger; and the lenders named therein, as lenders, as the same may be further amended or supplemented, amended and restated, refinanced or otherwise modified from time to time after the execution and delivery hereof. Senior Loan Documents - the Senior Loan Agreement and any and all --------------------- agreements, instruments and documents executed in connection with the Senior Loan Agreement, as the same may be further modified, amended or supplemented after the execution and delivery thereof. Senior Obligations - all of the obligations of Borrower, whether now or ------------------ hereafter existing, under or in respect off (i) the Senior Loan Agreement and the other Senior Loan Documents, whether direct or indirect, absolute or contingent, and whether for principal, interest (including, without limitation, interest accruing after the filing of a petition initiating any Insolvency Proceeding, whether or not such interest accrues after the filing of such petition for purposes of any applicable Insolvency Law, or is an allowed claim in such Insolvency Proceeding), premium, fees, indemnification payments, contract causes of action, costs, expenses or otherwise; and (ii) all extensions, modifications, substitutions, amendments, renewals, refinancings, replacements and 3 refundings of any or all of the Senior Obligations referred to in clause (i) of this paragraph, and any instrument or agreement evidencing or otherwise setting forth the terms of any Indebtedness or other Senior Obligations incurred in any such extension, modification, substitution, amendment, renewal, refinancing, replacement or refunding. Subsidiary - with respect to any Person, any other Person of which such ---------- Person owns or controls the voting of, directly or indirectly through one or more intermediaries, more than fifty percent (50%) of the voting stock or other ownership interests representing more than fifty percent (50%) of the ordinary voting power of such entity at the time of determination. Tax - any tax, levy, impost, duty, withholding, assessment, fee or other --- charge which is assessed, levied or imposed or calculated for any government, governmental, semi-governmental administrative, fiscal or judicial body, department, commission, authority, tribunal, agency or entity (including without limitation any penalty, addition to tax or interest payable in connection or with any failure to pay or any delay in paying any of the same). Voided Payment - as defined in Section 8.5 of this Agreement. -------------- 1.2 Certain Matters of Construction. Terms defined herein in the singular -------------------------------- shall have the correlative meaning when used in the plural and vice versa. The terms "herein," "hereof' and "hereunder" and other words of similar import refer to this Agreement as a whole and not to any particular section, paragraph or subdivision. Any pronoun used shall be deemed to refer to the masculine, feminine and neuter genders. The Section titles, table of contents and list of exhibits appear as a matter of convenience only and shall not affect the interpretation of this Agreement. All references to the knowledge of Borrower (and phrases of similar import) shall include the knowledge of each of the Subsidiaries of Borrower. 1.3 Time References. Unless otherwise indicated herein, all references to --------------- time of day refer to Pacific standard time or Pacific daylight savings time, as in effect in Los Angeles, California on such day. For purposes of the computation of a period of time from a specified date to a later specified date, the word "from" means "from and including" and the words "to" and "until" each means "to but excluding"; provided, however, that with respect to a computation of fees or interest payable to Lender, such period shall in any event consist of at least one (1) full day. ARTICLE 2. THE LOAN. --------- 2.1 The Loan. Lender shall make a loan (the "Loan") to Borrower in the -------- principal amount of One Hundred Four Million Five Hundred Seventy Three Thousand Dollars ($104,573,000) (the "Principal Amount"), which shall be funded in full on the Closing Date. Lender shall not have any responsibility as to the use of any of the proceeds of the Loan. The Loan shall be evidenced by the Note in favor of Lender in the form of Exhibit A annexed hereto. 4 2.2 Repayment of the Loan. The Principal Amount shall be repaid on ---------------------- August 1, 2007 (the "Maturity Date"). ARTICLE 3. INTEREST. FEES. PREPAYMENTS AND REPAYMENT ----------------------------------------- 3.1 Interest. -------- (A) Interest ("Interest") shall accrue from and after the Closing Date, on the Principal Amount, at the rate of eleven and 80/100 percent (11.80%) per annum, compounded quarterly, on the basis of a three hundred sixty-five (365)/three hundred sixty-six (366) day year. (B) At the option of Borrower, and subject to the subordination provisions set forth in Article 8 hereof, Borrower may on any Interest Payment Date elect to (i) pay any portion or all of the accrued and unpaid interest on the principal amount or (ii) elect to defer such payment until the Maturity Date as provided in Section 3. I(C). (C) If, on any Interest Payment Date, Borrower elects to defer the payment of interest until the Maturity Date as provided in Section 3.1 (B) or is not permitted to pay interest as a result of the subordination provisions set forth in Article 8 hereof, an amount equal to the Interest which accrued on the Principal Amount from the immediately preceding Interest Payment Date (or in the case of the first Interest Payment Date, which accrued from the Closing Date) through such Interest Payment Date shall be added automatically to the Principal Amount and become a part thereof (such amount of Interest being referred to as "Deferred Interest"). 3.2 Optional Prepayment. ------------------- (A) After the Senior Obligations have been paid in full, or at any earlier time to the extent otherwise expressly permitted under the Senior Loan Agreement, Borrower may prepay the Loan, in whole or in part, at any time, upon at least five (5) Business Days' prior written notice to Lender. Any partial prepayment of the Principal Amount shall be in the amount of Five Hundred Thousand Dollars ($500,000) or in integral multiples of Five Hundred Thousand Dollars ($500,000). Any prepayment of the Principal Amount on a Prepayment Date pursuant to this Section 3.2 shall be accompanied by payment of the amount off (i) all Obligations (other than principal and Interest) due and payable on the Prepayment Date; and (ii) all Interest accrued (and not yet paid and added to the Principal Amount as Deferred Interest) on the Principal Amount being prepaid from the Closing Date through the Prepayment Date. (B) The prepayment of the Loan pursuant to this Section 3.2 shall be without premium or penalty. 5 3.3 Payments. The Obligations shall be payable as set forth in this -------- Section 3.3. (A) The Principal Amount shall be due and payable as provided in Sections 2.2, 3.2 or 7.1 hereof, as applicable. (B) Interest accrued on the Principal Amount shall be due and payable in arrears on the earliest of (i) each successive Interest Payment Date, (ii) the occurrence of an Event of Default in consequence of which Lender elects to accelerate the maturity and payment of the Obligations, (iii) the Prepayment Date (but only with respect to the amount of principal being prepaid at such date) or (iv) the Maturity Date. Notwithstanding the foregoing, Borrower may elect not to pay Interest on any Interest Payment Date and defer such payment as provided in Section 3.1 (c) above. (C) Except as may be otherwise provided in Section 3.2 hereof, costs, fees, expenses and any Obligations payable pursuant to this Agreement other than Principal Amount and Interest shall be due and payable by Borrower to Lender or to any other Person designated by Lender in writing (i) on demand, or (ii) whether or not any demand has been made, upon (a) the occurrence of an Event of Default in consequence of which Lender elects to accelerate the maturity and payment of the Obligations or (b) the Maturity Date. 3.4 Payment Procedures. Each payment payable by Borrower to Lender under ------------------ this Agreement, the Note or any of the other Loan Documents shall be made directly to Lender, not later than 11:00 a.m., on the due date of each such payment, by wire transfer of immediately available federal funds in United States Dollars. If any sum would, but for the provisions of this Section 3.4, the Note or any of the other Loan Documents, become due and payable to Lender on any day which is not a Business Day, then such sum shall become due and payable on the Business Day next succeeding the day on which such sum would otherwise have become due and payable hereunder or thereunder. 3.5 Taxes. ----- (A) Gross-up and Other Taxes. All payments made by the Borrower ------------------------- hereunder, and under the Note or any other Loan Document shall be made without set off, counterclaim, deduction or other defense. All such payments shall be made free and clear of and without deduction for any present or future income, franchise, sales, use, excise, stamp or other Taxes, levies, imposts, deductions, charges, fees, withholdings, restrictions or conditions of any nature now or hereafter imposed, levied, collected, withheld or assessed by any jurisdiction (whether pursuant to United States Federal, state, local or foreign law) or by any political subdivision or taxing authority thereof or therein, and all interest, penalties or similar liabilities, excluding taxes on the net income of, and branch profit taxes of, any Lender imposed by the jurisdiction in which such Lender is organized or any political subdivision thereof or taxing authority thereof or any jurisdiction in which such Person's principal office or relevant lending office is located or any political subdivision thereof or taxing authority thereof (other than any such Taxes with respect 6 to additional net income arising from the receipt of payments under this Section 3.5) (such non-excluded taxes being hereinafter collectively referred to as "Non-Excluded Taxes"). If the Borrower shall be required by law to deduct or to withhold any Non-Excluded Taxes from or in respect of any amount payable hereunder, (i) the amount so payable shall be increased to the extent necessary so that after making all required deductions and withholdings (including Taxes on amounts payable to Lender pursuant to this sentence) Lender receives an amount equal to the sum it would have received had no such deductions or withholdings been made, (ii) the Borrower shall make such deductions or withholdings, and (iii) the Borrower shall pay the full amount deducted or withheld to the relevant taxation authority in accordance with applicable law. Whenever any Non-Excluded Taxes are payable by the Borrower, as promptly as possible thereafter, the Borrower shall send Lender an official receipt (or, if an official receipt is not available, such other documentation as shall be reasonably satisfactory to Lender) showing payment. In addition, the Borrower shall pay any present or future stamp, documentary, excise, property or similar Taxes, charges or levies that arise from any payment made under the Loan Documents by Borrower or from the execution, delivery, performance, release, discharge, amendment, enforcement, attempted enforcement or registration of, or otherwise with respect to, this Agreement, any other Loan Document or any transaction contemplated by this Agreement or any other Loan Document as any and all of the foregoing relate to Borrower (hereinafter referred to as "Other Taxes"). (B) Tax Indemnity. Borrower shall indemnify Lender for the full amount of ------------- Non-Excluded Taxes and Other Taxes, including, without limitation, any Non- Excluded Taxes or Other Taxes imposed by any jurisdiction on amounts payable under this Section 3.5 (such Taxes being hereinafter referred to as "Gross-Up Taxes") with respect to which Borrower has made a deduction from any payment required to be made to Lender or which are paid by Lender in respect of either the Loan Documents or payments made by Borrower under the Loan Documents (as the case may be) and any liability (including penalties, additions to tax, interest and expenses) arising therefrom or with respect thereto, whether or not such Non-Excluded Taxes or Other Taxes were correctly or legally asserted. This indemnification shall be made within thirty (30) days from the date Lender makes written demand therefor. (C) Survival of Obligations. Without prejudice to the survival of any ----------------------- other agreement of Borrower hereunder, the agreements and obligations of Borrower contained in this Section 3.5 shall survive the payment in full by Borrower of all principal and Interest hereunder, until six (6) months after the expiration of the applicable statute of limitation with respect to any Gross-Up Taxes, Non-Excluded Taxes and Other Taxes. (D) Filings by Lender. (i) Borrower shall use reasonable efforts in good ----------------- faith to file (or update the filing of) any certificate or document provided or requested by Lender or take any reasonable action requested by Lender if the filing of such certificate or document or the taking of such action would avoid the need for, reduce the amount of, or assist in the recovery of any payment of Taxes, or avoid the circumstances giving rise to the need for such payment, and (ii) in the event Borrower fails to exercise the reasonable efforts in good faith described in Section 7 3.5(D)(i) above, the Taxes arising from such failure shall be considered Non- Excluded Taxes and Borrower shall indemnify Lender in accordance with Section 3.5(B). 3.6 Application of Payments and Collections. Borrower irrevocably waives --------------------------------------- the right to direct the application of any and all payments and collections at any time or times hereafter received by Lender from or on behalf of Borrower, and Borrower does hereby irrevocably agree that Lender shall have the continuing exclusive right to apply and reapply any and all such payments and collections received at any time or times hereafter by Lender or any Person designated by Lender against the Obligations, in such manner as Lender may deem advisable consistent with the terms of this Agreement, notwithstanding any entry by Lender upon any of its books and records. Notwithstanding the foregoing provisions of this Section 3.6, unless otherwise specified by Lender, any payment or collection in respect of any of the Obligations (other than quarterly payments of Interest pursuant to Section 3.1 hereof) shall be applied by Lender (a) first, to the payment of all Obligations (if any) other than the principal and Interest due and payable at such time, (b) next, to the payment of all Interest which shall then be due and payable on the Principal Amount and (c) next, to the payment of the outstanding Principal Amount. ARTICLE 4. REPRESENTATIONS AND WARRANTIES ------------------------------ To induce Lender to enter into this Agreement and to make advances hereunder, Borrower represents and warrants to Lender, on the Closing Date, that: 4.1 Organization. Good Standing. Etc. Borrower (i) is a corporation, duly -------------------------------- organized, validly existing and in good standing under the laws of the State of Delaware, and (ii) has all requisite corporate power and authority to conduct its business as now conducted and to make the borrowings hereunder and to consummate the transactions contemplated by the Loan Documents to which it is a party. 4.2 Authorization Etc. The execution, delivery and performance by ------------------ Borrower of each of the Loan Documents to which it is a party (i) have been duly authorized by all necessary corporate action on the part of Borrower, (ii) do not and will not contravene the charter and by-laws of Borrower, or any applicable law or any contractual restriction binding on or otherwise affecting it or any of its properties, except where such conflict would not have a material adverse effect on the business, condition (financial or otherwise) operations or assets of the Borrower and its Subsidiaries taken as a whole (a "Material Adverse Effect"), (iii) do not and will not result in the violation, breach of, conflict with, accelerate the due date of any payments under, or (without the giving of notice or the passage of time or both) entitle any party to terminate or call a default under any contract to which the Borrower or any of its Subsidiaries is a party, or to which any of their respective assets are subject or otherwise bound which would not have a Material Adverse Effect, and (iv) do not and will not result in or require the creation of any Lien, upon or with respect to any of its properties. 8 4.3 Governmental Approvals. No authorization or approval or other action ----------------------- by, and no notice to or filing with, any governmental authority or other regulatory body is required in connection with the due execution, delivery and performance by each of Borrower or any Subsidiary of each of the Loan Documents to which it is a party. 4.4 Enforceability. of Loan Documents. This Agreement is, and each other ----------------------------------- Loan Document to which each of Borrower or any Subsidiary is a party, when delivered hereunder, will be, legal, valid and binding obligations of Borrower and each Subsidiary, as the case may be, enforceable against Borrower and each Subsidiary in accordance with their respective terms, except to the extent that the enforceability thereof may be limited by any applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance or similar laws from time to time in effect affecting generally the enforcement of creditors' rights and remedies and by general principles of equity. ARTICLE 5. COVENANTS AND CONTINUING AGREEMENTS ----------------------------------- So long as any amount owing in respect of the Obligations (whether or not due) shall remain unpaid, Borrower covenants that, unless otherwise consented to by Lender in writing, it shall: 5.1 Compliance with Laws. Etc. Comply, and cause each of its Subsidiaries --------------------------- to comply, with all applicable laws, rules, regulations and orders, except where such failure to comply would not, either in any case or in the aggregate, reasonably be likely to result in a Material Adverse Effect. 5.2 Preservation of Existence, Etc. Maintain and preserve, and cause each -------------------------------- of its Subsidiaries to maintain and preserve, its existence, rights and privileges, and become or remain duly qualified and in good standing in each jurisdiction in which the character of the properties owned or leased by them or in which the transaction of their business makes such qualification necessary, except (i) where the failure to maintain and preserve the existence, rights and privileges of Borrower or its Subsidiaries would not, either in any single case or in the aggregate, reasonably be likely to result in a Material Adverse Effect, or (ii) where such failure to qualify would not, either in any case or in the aggregate, reasonably be likely to result in a Material Adverse Effect. 5.3 Keeping of Records and Books of Account. Keep, and cause each of its --------------------------------------- Subsidiaries to keep, adequate records and books of account, with complete entries made in accordance with GAAP. 5.4 Further Assurances. Shall, and shall cause each Subsidiary to, do, ------------------ execute, acknowledge and deliver, at the sole cost and expense of Borrower or any such Subsidiary, all such further acts and assurances as Lender may reasonably require from time to time in order to better assure and confirm unto Lender the rights now or hereafter intended to be granted to it under this Agreement, any Loan Document or any other instrument under which Borrower or any 9 of its Subsidiaries may be or may hereafter become bound for carrying out the intention or facilitating the performance of the terms of the Agreement. 5.5 Characterization of Note. Lender and Borrower shall at all times ------------------------ characterize the Notes as "indebtedness" rather than "stock" for all purposes whatsoever and will not take any position or action to the contrary thereto unless required by law. Neither Lender nor Borrower will disclose treatment of the Note in a manner inconsistent with the characterization of the Note as "indebtedness" within the meaning of the Code Section 385(c) in any return, information statement or other filing with the Internal Revenue Service. ARTICLE 6. CONDITIONS PRECEDENT -------------------- As a condition precedent to Lender making the Loan hereunder, the following conditions, as the case may be, shall be fulfilled in a manner reasonably satisfactory to Lender: 6.1 Delivery of Documents. Lender shall have received the following ---------------------- documents on or prior to the Closing Date: (A) the Note, duly executed and delivered by Borrower, and any other instruments, documents or certificates executed by Borrower or any of its Subsidiaries in respect of the transactions contemplated by this Agreement or which are reasonably requested by Lender; (B) evidence that Borrower and its Subsidiaries are in full compliance with all of their respective representations, warranties, covenants and agreements set forth in the Senior Loan Documents, that neither Borrower nor its Subsidiaries are in breach of, or default under, any of the Senior Loan Documents and that the Senior Loan Documents are in full force and effect in accordance with their respective terms; and (C) such other documents, instruments and agreements as Lender shall reasonably request in connection with the foregoing matters. 6.2 Additional Conditions Precedent. The following conditions shall be ------------------------------- satisfied on the Closing Date, in the sole discretion, reasonably exercised, of Lender: (A) no action, proceeding, investigation, regulation or legislation shall have been instituted, threatened or proposed before any court, governmental agency or legislative body to enjoin, restrain or prohibit, or to obtain damages in respect of, or which is related to or arises out of this Agreement, the other Loan Documents, any Senior Loan Documents or the consummation of the transactions contemplated hereby or thereby or which, in Lender's sole discretion, would make it inadvisable to consummate the transactions contemplated by this Agreement or any of the other Loan Documents; and 10 (B) all legal matters in connection with the transactions contemplated by the Loan Documents shall be reasonably satisfactory to Lender and its counsel in their sole discretion. ARTICLE 7. EVENTS OF DEFAULT: RIGHTS AND REMEDIES ON DEFAULT ------------------------------------------------- 7.1 Events of Default. The existence of any one or more of the following ------------------ events shall constitute an Event of Default: (A) Borrower shall fail to pay any (i) principal when due (whether by scheduled maturity, required prepayment, acceleration, demand or otherwise) under the Loan Documents and such failure shall continue unremedied for fifteen (15) days or (ii) any Interest, any fee, indemnity or other amounts due or other Obligations under any Loan Document when due (unless deferred pursuant to Section 3.1 (c) hereof) and such failure shall continue unremedied for thirty (30) days; (B) any representation or warranty made by Borrower or any officer of Borrower under or in connection with any Loan Document shall have been or shall be incorrect in any material respect when made; (C) Borrower shall fail to perform or observe any of its Obligations under any Loan Document, including but not limited to any covenant contained in Article 5 hereof (other than occurrences referred to or embodied in other provisions of this Section 7.1), and such failure shall continue unremedied for a period of thirty (30) days after the earlier of (i) Borrower's receipt of notice from Lender or (ii) actual knowledge of such breach by Borrower; (D) Borrower or any Subsidiary (i) shall institute any proceeding or voluntary case seeking to adjudicate it a bankrupt or insolvent, or seeking dissolution, liquidation, winding up, reorganization, arrangement, adjustment, protection, relief or composition of it or its debts under any law relating to bankruptcy, insolvency, reorganization or relief of debtors, or seeking the entry of an order for relief or the appointment of a receiver, trustee, custodian or other similar official for such party or for any substantial part of its property, (ii) shall be generally not paying its debts as such debts become due, or shall admit in writing its inability to pay its debts generally, (iii) shall make a general assignment for the benefit of creditors or (iv) shall take any action to authorize or effect any of the actions set forth above in this subsection (D); (E) any proceeding shall be instituted against Borrower or any Subsidiary seeking to adjudicate it a bankrupt or insolvent, or seeking dissolution, liquidation, winding up, reorganization, arrangement, adjustment, protection, relief of debtors, or seeking the entry of an order for relief or the appointment of a receiver, trustee, custodian or other similar official for Borrower or any Subsidiary or for any substantial part of its property, and either such proceeding shall remain undismissed or unstayed for a period of seventy (70) days or any of the actions sought in such proceeding (including, without limitation, the entry of an order for relief against it or the 11 appointment of a receiver, trustee, custodian or other similar official for it or for any substantial part of its property) shall occur; and (F) any material provision of any Loan Document shall at any time for any reason be declared to be null and void, or the validity or enforceability thereof shall be contested by Borrower, or a proceeding shall be commenced by Borrower or any governmental authority or other regulatory body having jurisdiction over Borrower, seeking to establish the invalidity or unenforceability thereof, or Borrower shall deny in writing that Borrower has any material liability or obligation purported to be created under any Loan Document; then, and in any such event, and except as otherwise provided in the subordination provisions set forth in Article 8 hereof, Lender may by written notice to Borrower, (i) declare the Loan, all Interest thereon and all other amounts payable under this Agreement to be forthwith due and payable, whereupon the Loan, all such Interest and all such amounts shall become and be forthwith due and payable, without presentment, demand, protest or further notice of any kind, all of which are hereby expressly waived by Borrower; provided, however, that upon the occurrence and during the continuance of any Event of Default described in Section 7.1 (c) or (D), the Loan, all such Interest and all such amounts shall become and be forthwith due and payable, without presentment, demand, protest or further notice of any kind, all of which are expressly waived by Borrower, and (ii) exercise any and all of its other rights under applicable law, hereunder and under the other Loan Documents. 7.2 Remedies Cumulative: No Waiver. All covenants, conditions, provisions, ------------------------------ warranties, guaranties, indemnities, and other undertakings of Borrower contained in this Agreement and the other Loan Documents, or in any document referred to herein or contained in any agreement supplementary hereto or thereto or contained in any other agreement between Lender and Borrower, heretofore, concurrently, or hereafter entered into, shall be deemed cumulative to, and not in derogation or substitution of, any of the terms, covenants, conditions, or agreements of Borrower herein contained. The failure or delay of Lender to exercise or enforce any rights, powers, or remedies hereunder or under any of the aforesaid agreements or other documents shall not operate as a waiver of such rights, powers and remedies, but all such rights, powers, and remedies shall continue in full force and effect until the outstanding Principal Amount, all Interest and all other Obligations owing or to become owing from Borrower to Lender shall have been fully satisfied, and all rights, powers, and remedies herein provided for are cumulative and none are exclusive. ARTICLE 8. SUBORDINATION ------------- 8.1 In the event of any dissolution, winding up, liquidation, arrangement, reorganization, adjustment, protection, relief or composition of Borrower or its debts, whether voluntary or involuntary, in any bankruptcy, insolvency, arrangement, reorganization, receivership, relief or other similar action or proceeding under the United States Federal Bankruptcy Code or any other federal or state bankruptcy or insolvency laws or any similar Requirements of Law (as such term is defined in the Senior Loan Agreement) of any other jurisdiction covering the protection of creditors' rights or the relief of debtors (collectively, the 12 "Insolvency Laws") or upon an assignment for the benefit of creditors or any other marshalling of the property, assets and liabilities of Borrower or otherwise (each, an "insolvency Proceeding"), the Senior Agent, for the ratable benefit of the Senior Lenders, shall be entitled to receive payment in full of all of the Senior Obligations before Lender is entitled to receive any payment or distribution of any kind or character on account of all or any of the Obligations, and, to that end, any payment or distribution of any kind or character (whether in cash, property or securities) that otherwise would be payable or deliverable upon or with respect to the Obligations in any such Insolvency Proceeding (including, without limitation, any payment that may be payable by reason of any other Indebtedness of Borrower being subordinated to payment of the Obligations) shall be paid or delivered forthwith directly to the Senior Agent, for the account of the Senior Lenders, in the same form as so received (with any necessary endorsement or assignment) for application (in the case of cash) to, or to be held as collateral (in the case of noncash property or securities) for, the payment or prepayment of the Senior Obligations until all of the Senior Obligations shall have been paid in full. 8.2 So long as the Senior Obligations shall not have been paid in full, Lender shall not (a) ask, demand, sue for, take or receive from Borrower (except as otherwise expressly permitted under the Senior Loan Agreement), directly or indirectly, in cash or other property or by set off or in any manner (including, without limitation, from or by way of collateral), payment of all or any of the Obligations or (b) commence, or join with any creditor other than the Senior Agent in commencing, or directly or indirectly cause Borrower to commence, or assist Borrower in commencing, any Insolvency Proceeding. If Lender, in contravention hereof, shall commence, prosecute or participate in any Insolvency Proceeding, then the Senior Agent may intervene and interpose as a defense or plea the terms of the Note in its own name or in the name of Lender. 8.3 Until such time as all of the Senior Obligations have been paid in full, if any Insolvency Proceeding is commenced by or against the Payor: (A) the Senior Agent is hereby irrevocably authorized and empowered (in its own name or in the name of Lender or otherwise), but shall have no obligation, to demand, sue for, collect and receive every payment or distribution otherwise payable to Lender in respect of the Note and give acquittance therefor, and to file claims and proofs of claim and take such other action (including, without limitation, voting the Obligations or enforcing any security interest or other lien securing payment of the Obligations) as it may deem necessary or advisable for the exercise or enforcement of any of the rights or interests of the Senior Agent and the other Senior Lenders under the Note; and (B) Lender shall duly and promptly take such action as the Senior Agent may reasonably request (i) to collect the Obligations for the account of the Senior Agent, for the ratable benefit of the Senior Lenders, and to file appropriate claims or proofs of claim in respect of the Obligations, (ii) to execute and deliver to the Senior Agent such powers of attorney, assignments or other instruments as the Senior Agent may reasonably request in order to enable the Senior Agent to enforce any and all claims with respect to, and any security interests and other liens 13 securing payment of, the Obligations and (iii) to collect and receive any and all payments or distributions that may be payable or deliverable upon or with respect to the Obligations. 8.4 All payments or distributions upon or with respect to the Obligations that are received by Lender contrary to the provisions of this Article 8 shall be received in trust for the benefit of the Senior Agent, for the account of the Senior Lenders, shall be segregated from other property or funds of Lender and shall be paid or delivered forthwith directly to the Senior Agent, for the account of the Senior Lenders, in the same form as so received (with any necessary endorsement or assignment) to be applied (in the case of cash) to, or held as collateral (in the case of noncash property or securities) for, the payment or prepayment of the Senior Obligations until all of the Senior Obligations shall have been paid in full. 8.5 To the extent that Borrower or any of its Subsidiaries or any other guarantor of or provider of collateral for the Senior Obligations shall make any payment on the Senior Obligations that is subsequently invalidated, declared to be fraudulent or preferential or set aside or is required to be repaid to a trustee, receiver or any other party under Insolvency Law or equitable cause (any such payment being a "Voided Payment"), then to the extent of such Voided Payment, that portion of the Senior Obligations that had been previously satisfied by such Voided Payment shall be reinstated and continue in full force and effect as if such Voided Payment had never been made. To the extent that Lender shall have received any payments subsequent to the date of the initial receipt of such Voided Payment by the Senior Agent or any of the Senior Lenders and such payments have not been invalidated, declared to be fraudulent or preferential or set aside or required to be repaid to a trustee, receiver, or any other party under any Insolvency Law or equitable cause, Lender shall be obligated and hereby agrees that any such payment so made or received shall be deemed to have been received in trust for the benefit of the Senior Agent, and Lender hereby agrees to pay to the Senior Agent, upon demand, the full amount so received by Lender during such period of time to the extent necessary to fully restore to the Senior Lenders the amount of such Voided Payment, which amount shall be applied as set forth in Section 8.4. 8.6 The Senior Agent is hereby authorized to demand specific performance of the subordination provisions of this Article 8, whether or not Borrower shall have complied with any of the provisions hereof applicable to it, at any time when Lender shall have failed to comply with any of the subordination provisions of this Article 8. Lender hereby irrevocably waives any defense based on the adequacy of a remedy at law, which might be asserted as a bar to such remedy of specific performance. 8.7 Lender will not: (A) (i) cancel or otherwise discharge any of the Obligations (except upon payment in full of the Senior Obligations), (ii) convert or exchange any of the Obligations into or for any other Indebtedness, (iii) convert or exchange any of the Obligations into or for any equity interest in the Borrower or otherwise unless such equity interest in pledged to the Senior Agent, on behalf of the Senior Lenders, under the applicable Senior Loan Documents immediately 14 following such conversion or exchange or (iv) subordinate any of the Obligations to any Indebtedness of Borrower other than the Senior Obligations; (B) sell, assign, pledge, encumber or otherwise dispose of any of the Obligations; or (C) permit the terms of any of the Obligations to be amended, waived, supplemented or otherwise modified in such a manner as could have an adverse effect upon the rights or interests of the Senior Agent or any of the other Senior Lenders under this Agreement or any of the Loan Documents. 8.8 No payment or distribution to the Senior Agent or any of the other Senior Lenders pursuant to the provisions of this Agreement or the Note shall entitle Lender to exercise any rights of subrogation in respect thereof, nor shall Lender have any right of reimbursement, restitution, exoneration, contribution or indemnification whatsoever from any property or assets of Lender or any of the other guarantors, sureties or providers of collateral security for the Senior Obligations, or any right to participate in any claim or remedy of the Senior Agent or any of the Senior Lenders against Borrower, whether or not such claim, remedy or right arises in equity or under contract, statute or common law (including, without limitation, the right to take or receive from Borrower, directly or indirectly, in cash or other property and assets or by set off or in any other manner, payment or security on account of such claim, remedy or right), until all of the Senior Obligations shall have been paid in full. 8.9 The holders of the Senior Obligations may, at any time and from time to time, without any consent of or notice to Lender or any other holder of the Obligations and without impairing or releasing the obligations of Lender hereunder: (A) change the manner, place or terms of payment, or change or extend the time of payment of, or renew payment or change or extend the time or payment of, or renew or alter, the Senior Obligations (including any change in the rate of interest thereon), or amend, supplement or otherwise modify in any manner any agreement under which any of the Senior Obligations is outstanding; (B) sell, exchange, release, not perfect and otherwise deal with any property or assets at any time pledged, assigned or mortgaged to secure the Senior Obligations; (C) release any Person liable in any manner under or in respect of the Senior Obligations; (D) exercise or refrain from exercising any rights against Borrower any other 15 Person; and (E) apply to the Senior Obligations any sums from time to time received by or on behalf of the Senior Agent or any of the Senior Lenders. 8.10 Each of the Borrower and Lender will further mark their respective books of account in such a manner as shall be effective to give proper notice of the effect of the subordination provisions of this Article 8. Each of Borrower and Lender will, at its sole expense and at any time and from time to time, promptly execute and deliver all further instruments and documents, and take all further action, that may be necessary or that the Senior Agent may reasonably deem desirable and may request, in order to protect any right or interest granted or purported to be granted under the subordination provisions of this Article 8 or to enable the Senior Agent or any of the Senior Lenders to exercise and enforce its rights and remedies hereunder. 8.11 The subordination provisions of this Article 8 are and are intended solely for the purpose of defining the relative rights of the Senior Lenders, on the one hand, and Lender, on the other hand. Such provisions are for the benefit of the Senior Lenders and shall inure to the benefit of, and shall be enforceable by, the Senior Agent, on behalf of itself and the Senior Lenders, directly against Lender, and no Senior Lender shall be prejudiced in its right to enforce subordination of any of the Obligations by any act or failure to act by Borrower or any Person in custody of its property or assets. 8.12 Nothing contained in this Article 8 is intended to or shall impair, as between the Borrower and Lender, the obligations of Borrower to Lender. 8.13 For all purposes of this Agreement, the Senior Obligations shall not be deemed to have been paid in full until the latest of (i) payment in full in cash of the aggregate principal amount of all outstanding Advances (as such term is defined in the Senior Loan Agreement), all accrued and unpaid interest thereon, all fees and expenses owing to the Senior Agent or any of the Senior Lenders in connection therewith and all other amounts comprising part of the Senior Obligations, (ii) the expiration or termination of all of the Bank Hedge Agreements (as such term is defined in the Senior Loan Agreement) and (iii) the Termination Date (as such term is defined in the Senior Loan Agreement). ARTICLE 9. MISCELLANEOUS ------------- 9.1 Indemnification. In addition to all of Borrower's other Obligations ---------------- under this Agreement, Borrower agrees to defend, protect, indemnify and hold harmless Lender and all of its officers, directors, employees, attorneys, consultants and agents (collectively called the "Indemnities") from and against any and all losses, damages, liabilities, obligations, penalties, fees, reasonable costs and expenses (including, without limitation, reasonable attorneys' fees, costs and expenses) incurred by such Indemnifies, whether prior to or from and after the Closing Date, whether direct, indirect or consequential, as a result of or arising from or relating to or in 16 connection with any of the following: (i) the negotiation, preparation, execution or performance or enforcement of this Agreement or of any document executed in connection with the transactions contemplated by this Agreement; (ii) the furnishing of funds to Borrower under this Agreement; (iii) any document executed in connection with the transactions contemplated by this Agreement or (iv) any claim, litigation, investigation or proceeding relating to any of the foregoing, whether or not any Indemnitee is a party thereto (collectively, the "Indemnified Matters"); provided, however, that Borrower shall not have any obligation to any Indemnitee hereunder for any Indemnified Matter caused by or resulting from the gross negligence or willful misconduct of such Indemnitee, as determined by a final judgment of a court of competent jurisdiction. To the extent that the undertaking to indemnify, pay and hold harmless set forth in this Section 9.1 may be unenforceable because it is violative of any law or public policy, Borrower shall contribute the maximum portion which it is permitted to pay and satisfy under applicable law, to the payment and satisfaction of all Indemnified Matters incurred by the Indemnities. The foregoing indemnity shall survive the repayment of the Obligations. 9.2 Amendments, Etc. No amendment or waiver of any provision of this --------------- Agreement or the other Loan Documents, and no consent to any departure therefrom by Borrower, shall in any event be effective unless the same shall be in writing and signed by Borrower and Lender, and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given; provided, however, that no amendment, waiver or consent shall, unless in writing and signed by Lender, (i) reduce the principal of, or interest on, the Loan or Obligations, (ii) postpone any date fixed for any payment of principal of, or interest or fees on, the Loan or the amount of any other Obligations, (iii) change the percentage of the aggregate unpaid principal amount of the Note, which shall be required for Lender to take any action hereunder or (iv) amend, modify or waive this Section 9.2; and provided further that no such amendment or waiver or consent to any departure therefrom of Article 8 or any other provision that could adversely affect the rights and interests of the Senior Agent or any of the Senior Lenders (under or in respect of the Loan Documents or any of the Senior Loan Documents) in any manner shall be effective without the written consent of the Senior Agent. 9.3 Expenses; Attorneys' Fees. Borrower agrees to pay or cause to be ------------------------- paid, on demand, and to save Lender harmless against liability for the payment of, all reasonable out-of-pocket expenses, including but not limited to reasonable fees and expenses of counsel for Lender, periodic field audits, from time to time arising from or relating to (other than when arising from the gross negligence or willful misconduct of Lender, as the case may be): (i) any amendments, waivers or consents to this Agreement or the other Loan Documents requested by Borrower whether or not such documents become effective or are given; (ii) upon the occurrence and during the continuance of any Event of Default, the preservation and protection of any of Lender's rights under this Agreement or the other Loan Documents; (iii) the defense of any claim or action asserted or brought against Lender by any Person that arises from this Agreement, any other Loan Document, Lender's claims against Borrower, or any and all matters in connection therewith; (iv) the commencement (other than by Lender, except upon the occurrence and during the continuance of any Event of Default) or defense of, or intervention in, any court proceeding arising from or 17 related to this Agreement or any other Loan Document; (v) upon the occurrence and during the continuance of any Event of Default, the filing of a petition, complaint, answer, motion or other pleading by Lender, or the taking of any action in connection with this Agreement or any other Loan Document; (vi) upon the occurrence and during the continuance of any Event of Default, any attempt to collect from Borrower; and (vii) the receipt of any advice with respect to any of the foregoing. 9.4 Indulgences Not Waivers. The failure, at any time or times hereafter, ----------------------- to require strict performance by Borrower of any provision of this Agreement shall not waive, affect or diminish any right of Lender thereafter to demand strict compliance and performance therewith. Any suspension or waiver of an Event of Default under this Agreement or any of the other Loan Documents shall not suspend, waive or affect any other Event of Default under this Agreement or any of the other Loan Documents, whether the same is prior or subsequent thereto and whether of the same or of a different type. None of the undertakings, agreements, warranties, covenants and representations of Borrower contained in this Agreement or any of the other Loan Documents and no Event of Default under this Agreement or any of the other Loan Documents shall be deemed to have been suspended or waived by Lender, unless such suspension or waiver is by an instrument in writing specifying such suspension or waiver and is signed by a duly authorized representative of Lender and directed to Borrower. 9.5 Severability. Wherever possible, each provision of this Agreement or ------------ any other Loan Document shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement or any other Loan Document shall be prohibited by or invalid under applicable law, such provision shall be ineffective only to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of such agreement. 9.6 Cumulative Effect: Conflict of Terms. The provisions of the other ------------------------------------ Loan Documents are hereby made cumulative with the provisions of this Agreement. Except as specifically otherwise provided in this Agreement or in any of the other Loan Documents by specific reference to the applicable provision of this Agreement, if any provision contained in this Agreement is in direct conflict with, or inconsistent with, any provision in any of the other Loan Documents, the provision contained in this Agreement shall govern and control. 9.7 Execution in Counterparts. This Agreement may be executed in any ------------------------- number of counterparts and by different parties hereto in separate counterparts, each of which when so executed and delivered shall be deemed to be an original and all of which counterparts taken together shall constitute but one and the same instrument. 9.8 Notices. Except as otherwise provided herein, all notices, requests ------- and demands to or upon a party hereto to be effective shall be in writing, shall be sent by certified or registered mail, return receipt requested), or by telecopier or delivered by hand or by a recognized overnight courier service and, unless otherwise expressly provided herein, shall be deemed to have been 18 validly served, given or delivered when delivered against receipt or, in the case of telecopy notice, when sent, or, in the case of telex, when the appropriate answer back received, addressed as follows: (A) If to Lender: Fox Broadcasting Company 10201 West Pico Boulevard Los Angeles, CA 90035 Attention: Chase Carey With a copy to: Squadron, Ellenoff, Piesent & Sheinfeld, LLP 551 Fifth Avenue New York, NY 10176 Attention: Jeffrey W. Rubin, Esq. (B) If to Borrower, at: Fox Kids Worldwide, Inc. 10960 Wiltshire Boulevard Los Angeles, CA 90024 Attention: Mel Woods With a copy to: Troop Meisinger Steuber & Pasich, LLP 10940 Wilshire Boulevard Los Angeles, CA 90024 Attention: C.N. Franklin Reddick, III, Esq. (C) If to Senior Agent, at: Citcorp USA, Inc. 399 Park Avenue New York, NY 10043 Attention: Andrew Sriubas, Vice President With a copy to: Shearman & Sterling 599 Lexington Avenue 19 New York, NY 10022 Attention: William Hirschberg, Esq. or to such other address as each party may designate for itself by like notice given in accordance with this Section 9.8. 9.9 Demand. Nothing in this Agreement shall affect or abrogate the demand ------- nature of any portion of the Obligations expressly made payable on demand by this Agreement or by any instrument evidencing same, and the occurrence of an Event of Default shall not be a prerequisite for requiring payment of such Obligations, except as provided for in this Agreement. 9.10 Entire Agreement: Headings. This Agreement, and the other Loan -------------------------- Documents, together with all other instruments, agreements and certificates executed by the parties in connection therewith or with reference thereto, embody the entire understanding and agreement between the parties hereto and thereto with respect to the subject matter hereof and thereof and supersede all prior agreements, understandings and inducements, whether express or implied, oral or written. Section headings herein are included for convenience of reference only and shall not constitute a part of this Agreement for any other purpose. 9.11 Governing Law: Consent To Forum. This Agreement, the Note and the ------------------------------- other Loan Documents shall be governed by, and construed in accordance with, the law of the State of New York applicable to contracts made and to be performed in the State of New York without regard to conflicts of law principles. Any legal action or proceeding with respect to this Agreement or any other Loan Document may be brought in the courts of the State of New York or of the United States for the Southern District of New York, and, by execution and delivery of this Agreement, Borrower hereby irrevocably accepts in respect of its property, generally and unconditionally, the jurisdiction of the aforesaid courts. Borrower further irrevocably consents to the service of process out of any of the aforementioned courts and in any such action or proceeding by the mailing of copies thereof by registered or certified mail, postage prepaid, at its address for notices contained in Section 9.8, such service to become effective ten (10) days after such mailing. Nothing herein shall affect the right of Lender to service of process in any other manner permitted by law or to commence legal proceedings or otherwise proceed against Borrower in any other jurisdiction. 9.12 Right of Set-Off. Upon the occurrence and during the continuance of ---------------- any Event of Default, Lender may, and is hereby authorized to, at any time and from time to time, without notice to Borrower (any such notice being expressly waived by Borrower) and to the fullest extent permitted by law, and subject to the rights of the Senior Agent and the Senior Lenders hereunder, to set off and apply any and all deposits (general or special, time or demand, provisional or final) at any time held and other indebtedness at any time owing by Lender to or for the credit or the account of Borrower against any and all obligations of Borrower now or hereafter existing under any Loan Document to the extent such obligations have become due. Lender agrees to notify Borrower promptly after any such set-off and application made by such Bank; provided that the failure to give such notice shall not affect the validity of such set-off and application. The rights 20 of Lender under this Section 9.12 are in addition to the other rights and remedies (including, without limitation, other rights of set-off) which Lender may have. 9.13 No Party. Deemed Drafter. Borrower and Lender agree that no party ------------------------ hereto shall be deemed to be the drafter of this Agreement, and Borrower and Lender, further agree that, in the event this Agreement is ever construed by a court of law, such court shall not construe this Agreement or any provision of this Agreement against any party hereto as the drafter of this Agreement. 9.14 Reinstatement; Certain Payments. If claim is ever made upon Lender ------------------------------- for repayment or recovery of any amount or amounts received by Lender in payment or on account of any of the Obligations under this Agreement, Lender shall give prompt notice of such claim to Borrower, and if Lender repays all or part of said amount by reason of (i) any judgment, decree or order of any court or administrative body having jurisdiction over Lender or any of its property or (ii) any good faith settlement or compromise of any such claim effected by Lender with any such claimant, then and in such event, Borrower agrees that (a) any such judgment, decree, order, settlement or compromise shall be binding upon Borrower notwithstanding the cancellation of the Note or other instrument evidencing the Obligations under this Agreement or the other Loan Documents or the termination of this Agreement or the other Loan Documents and (b) it shall be and remain liable to Lender hereunder for the amount so repaid or recovered to the same extent as if such amount had never originally been received by Lender. 9.15 Assignment. Lender may assign to one or more Persons all or a ---------- portion of its rights and obligations under this Agreement; provided, however, that, without the prior written consent of Borrower, Lender may not assign its rights and obligations under this Agreement to any Person who is not (a) an individual who is a citizen or resident of the United States, (b) a corporation, partnership or other entity created or organized in or under the laws of the United States, any State or any political subdivision thereof, (c) an estate the income of which is subject to United States Federal income taxation regardless of its source or (d) a trust whose administration is subject to the primary supervision of a United States court and which has one or more United States fiduciaries who have the authority to control all substantial decisions of such trust. 9.16 Confidentiality. Lender agrees to exercise all reasonable efforts to --------------- keep any information delivered or made available by Borrower to it which has not been publicly disclosed confidential from anyone other than persons employed or retained by Lender who are or are expected to become engaged in evaluating, approving, structuring or administering the Loan; provided, however, that nothing herein shall prevent Lender from disclosing such information (i) to its officers, directors, employees, agents, attorneys and accountants who have a need to know such information in accordance with customary practices and who receive such information having been made aware of the restrictions set forth in this Section, (ii) upon the order of any court or administrative agency, (iii) upon the request or demand of any regulatory agency or authority having jurisdiction over Lender, (v) to the extent reasonably required in connection with any litigation to which Lender, Borrower, or any Subsidiary or their respective affiliates may be a 21 party, (vi) to the extent reasonably required in connection with the exercise of any remedy hereunder, (vii) to Lender's legal counsel and independent auditors, and (viii) to any actual or proposed participant or assignee of all or part of its rights hereunder which has agreed in writing to be bound by the provisions of this Section 9.15. IN WITNESS WHEREOF, this Agreement has been duly executed on the day and year specified at the beginning hereof. Borrower: FOX KIDS WORLDWIDE, INC. By: /s/ Jay Itzkowitz ----------------- Name:__________________________ Title:___________________________ Lender: FOX BROADCASTING COMPANY By: /s/ Jay Itzkowitz ----------------- Name:__________________________ Title:___________________________ Senior Agent: CITICORP USA, INC. By: /s/ Carolyn Kee --------------- Name:__________________________ Title:___________________________ 22 Exhibit A - Form of Note - ---------- THIS NOTE AND THE OBLIGATIONS EVIDENCED HEREBY ARE SUBORDINATED IN THE MANNER AND TO THE EXTENT SET FORTH IN THE SUBORDINATED NOTE AGREEMENT (THE "NOTE AGREEMENT"), DATED AS OF JULY 31, 1997. EACH HOLDER OF THIS NOTE, BY ITS ACCEPTANCE HEREOF, SHALL BE BOUND BY THE PROVISIONS OF THE NOTE AGREEMENT. SUBORDINATED PROMISSORY NOTE ---------------------------- No. A-1 $104,573,000 July 31, 1997 FOR VALUE RECEIVED, the undersigned, Fox Kids Worldwide, Inc., a Delaware corporation, having an office at 10960 Wiltshire Boulevard, Los Angeles, CA 90024 ("Borrower"), hereby promises to pay to the order of Fox Broadcasting Company, a Delaware corporation (the "Lender"), having an office at c/o Fox Broadcasting Company, 10201 West Pico Boulevard, Los Angeles, CA 90035, or registered assigns, in lawful money of the United States, by wire transfer in immediately available federal funds, the principal amount of One Hundred Four Million Five Hundred Seventy Three Thousand Dollars ($104,573,000), loaned by Lender to Borrower pursuant to the Subordinated Note Agreement dated July 31, 1997, among Borrower, Lender and Citicorp USA, Inc. (as amended and modified from time to time, the "Note Agreement"), together with additions to such principal amount and interest thereon as set forth in the Note Agreement, which interest shall accrue from and after the date hereof on the outstanding principal amount of this Note, and such principal amount and interest thereon shall be payable at such times as set forth in the Note Agreement. Lender is hereby authorized by Borrower to record on Schedule A to this Note (or on a supplemental Schedule thereto) the amount of the Loan and the amount of each payment or prepayment of principal thereof received by Lender, it being understood, however, that failure to make any such notation shall not affect the rights of Lender or the obligations of Borrower hereunder in respect of this Note. At Lender's option, Lender may record such matters in their internal records rather than recording such matters on such Schedule. This Note is referred to in, and, is issued pursuant to, the Note Agreement and is entitled to all of the benefits of the Note Agreement and the Loan Documents. All of the terms, covenants and conditions of the Note Agreement and all other instruments evidencing the indebtedness hereunder 23 (including, without limitation, the Loan Documents), are hereby made a part of this Note and are deemed incorporated herein in full. The Note Agreement, among other things, provides for the acceleration of the then outstanding indebtedness hereunder during the existence of an Event of Default, upon the terms and conditions specified therein. All capitalized terms used herein, unless otherwise specifically defined in this Note, shall have the meanings ascribed to them in the Note Agreement. The Loan and all of the Obligations shall be subordinate to the Senior Obligations, in the manner and to the extent set forth in the Note Agreement. Each transferee of this Note (or any Note or Notes issued in exchange or substitution therefor), by acceptance of this Note (or any Note or Notes issued in exchange or substitution therefor), agrees to such subordination. To the fullest extent permitted by applicable law, Borrower, for itself and its legal representatives, successors and assigns, expressly waives presentment, demand, protest, notice of dishonor, notice of nonpayment, notice of maturity, notice of protest, presentment for the purpose of accelerating maturity and diligence in collection, and consents that Lender may (with the consent of Borrower) extend the time for payment or otherwise modify the terms of payment of any part or the whole of the debt evidenced hereby. This Note shall be governed by, and construed and enforced in accordance with, the laws of the State of New York, without regard to conflicts of laws principles. IN WITNESS WHEREOF, Borrower has caused this Note to be duly executed as of the date first above written. FOX KIDS WORLDWIDE, INC. By:_______________________________ Name:__________________________ Title:___________________________ 24 Schedule A ----------
Payments Unpaid Name of ------------------------ Principal Person Balance of Making Date Amount Principal Current Note Notation - ---- ------ --------- ------- ---- --------
25 THIS NOTE AND THE OBLIGATIONS EVIDENCED HEREBY ARE SUBORDINATED IN THE MANNER AND TO THE EXTENT SET FORTH IN THE SUBORDINATED NOTE AGREEMENT (THE "NOTE AGREEMENT"), DATED AS OF JULY 31, 1997. EACH HOLDER OF THIS NOTE, BY ITS ACCEPTANCE HEREOF, SHALL BE BOUND BY THE PROVISIONS OF THE NOTE AGREEMENT. SUBORDINATED PROMISSORY NOTE ---------------------------- No. A-1 $104,573,000 July 31, 1997 FOR VALUE RECEIVED, the undersigned, Fox Kids Worldwide, Inc., a Delaware corporation, having an office at 10960 Wiltshire Boulevard, Los Angeles, CA 90024 ("Borrower"), hereby promises to pay to the order of Fox Broadcasting Company, a Delaware corporation (the "Lender"), having an office at c/o Fox Broadcasting Company, 10201 West Pico Boulevard, Los Angeles, CA 90035, or registered assigns, in lawful money of the United States, by wire transfer in immediately available federal funds, the principal amount of One Hundred Four Million Five Hundred Seventy Three Thousand Dollars ($104,573,000), loaned by Lender to Borrower pursuant to the Subordinated Note Agreement dated July 31, 1997, among Borrower, Lender and Citicorp USA, Inc. (as amended and modified from time to time, the "Note Agreement"), together with additions to such principal amount and interest thereon as set forth in the Note Agreement, which interest shall accrue from and after the date hereof on the outstanding principal amount of this Note, and such principal amount and interest thereon shall be payable at such times as set forth in the Note Agreement. Lender is hereby authorized by Borrower to record on Schedule A to this Note (or on a supplemental Schedule thereto) the amount of the Loan and the amount of each payment or prepayment of principal thereof received by the Lender, it being understood, however, that failure to make any such notation shall not affect the rights of Lender or the obligations of Borrower hereunder in respect of this Note. At Lender's option, Lender may record such matters in their internal records rather than recording such matters on such Schedule. This Note is referred to in, and is issued pursuant to, the Note Agreement and is entitled to all of the benefits of the Note Agreement and the Loan Documents. All of the terms, covenants and conditions of the Note Agreement and all other instruments evidencing the indebtedness hereunder (including, without limitation, the Loan Documents), are hereby made a part of this Note and are deemed incorporated herein in full. The Note Agreement, among other things, provides for the acceleration of the then outstanding indebtedness hereunder during the 26 existence of an Event of Default, upon the terms and conditions specified therein. All capitalized terms used herein, unless otherwise specifically defined in this Note, shall have the meanings ascribed to them in the Note Agreement. The Loan and all of the Obligations shall be subordinate to the Senior Obligations, in the manner and to the extent set forth in the Note Agreement. Each transferee of this Note (or any Note or Notes issued in exchange or substitution therefor), by acceptance of this Note (or any Note or Notes issued in exchange or substitution therefor), agrees to such subordination. To the fullest extent permitted by applicable law, Borrower, for itself and its legal representatives, successors and assigns, expressly waives presentment, demand, protest, notice of dishonor, notice of nonpayment, notice of maturity, notice of protest, presentment for the purpose of accelerating maturity and diligence in collection, and consents that Lender may (with the consent of Borrower) extend the time for payment or otherwise modify the terms of payment of any part or the whole of the debt evidenced hereby. This Note shall be governed by, and construed and enforced in accordance with, the laws of the State of New York, without regard to conflicts of laws principles. IN WITNESS WHEREOF, Borrower has caused this Note to be duly executed as of the date first above written. FOX KIDS WORLDWIDE, INC. By: /s/ Jay Itzkowitz ----------------- Name:__________________________ Title:___________________________ 27 Schedule A ----------
Payments Unpaid Name of -------------------- Principal Person Current Balance of Making Date Amount Principal Interest Note Notation ---- ------ --------- -------- ---- --------
28 FIRST AMENDMENT TO SUBORDINATED NOTE AGREEMENT ---------------------------------------------- This FIRST AMENDMENT TO SUBORDINATED NOTE AGREEMENT (the "First Amendment"), is made the 4th day of September, 1997, by and among FOX BROADCASTING COMPANY, a Delaware Corporation ("Lender"), FOX KIDS WORLDWIDE, INC. (together with any successors or assigns, the "Borrower"), a Delaware corporation, and CITICORP USA, INC., as administrative agent under the Senior Loan Agreement. WHEREAS, the parties hereto are parties to a certain Subordinated Note Agreement, dated July 31, 1997 (the "Note Agreement"); and WHEREAS, the parties hereto desire to amend the Note Agreement to change the Maturity Date thereunder and to make certain correction thereto; NOW, THEREFORE, in consideration of the mutual covenants and agreements contained herein, the parties hereto agree as follows: 1. Definitions. All capitalized terms used herein which are defined in ----------- the Note Agreement and not otherwise defined herein shall have their meanings as defined in the Note Agreement. 2. Amendment to Section 2.2. Section 2.2 of the Note Agreement is hereby ------------------------ amended to delete the Maturity Date of "August 1, 2007" and to insert in lieu thereof "September 30, 2007". 3. Amendment to Section 8.3. Section 8.3(A) of the Note Agreement is ------------------------ hereby amended to delete the words "Senior Agent and the other Senior Lenders" from the seventh line thereof and to insert in lieu thereof the words "Senior Agent or any of the other Senior Lenders." 4. Amendment to Section 8.4. Section 8.4 of the Note Agreement is hereby ------------------------ amended to delete the words "for the account of the Senior Lenders," from the third line thereof. 5. Amendments to Section 8.5. ------------------------- 5.1 Section 8.5 of the Note Agreement is hereby amended to insert the words "any applicable" before the words "Insolvency Law" on the fourth line thereof. 5.2 Section 8.5 of the Note Agreement is hereby amended to insert the word "applicable" before the words "Insolvency Law" on the eleventh line thereof. 6. Amendments to Section 8.8. ------------------------- 6.1 Section 8.8 of the Note Agreement is hereby amended to delete the word "Lender" from the fourth line thereof and insert in lieu thereof the word "Borrower". 6.2 Section 8.8 of the Note Agreement is hereby amended to delete the words "and assets" from ninth line thereof. 7. Amendments to Section 8.9. ------------------------- 7.1 Section 8.9(A) of the Note Agreement is hereby amended to insert the word "of" after the word "payment" on the first line thereof. 7.2 Section 8.9(A) of the Note Agreement is hereby amended to delete the word "agreement" from the fourth line thereof and insert in lieu thereof the words "instrument, agreement or other document". 7.3 Section 8.9(B) of the Note Agreement is hereby amended to insert the words "of the" before the word "property" on the first line thereof. 7.4 Section 8.9(B) of the Note Agreement is hereby amended to insert the words "of any person" after the word "assets" on the second line thereof. 8. Miscellaneous. ------------- 8.1 On and after the date hereof, each reference in the Note Agreement to the terms "this Agreement," "hereunder," "hereof," "hereby," "herein" or other similar terms shall be deemed to be a reference to the Note Agreement as amended by this First Amendment. 8.2 Except as hereby amended, the Note Agreement shall continue in full force and effect. 8.3 This First Amendment may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed and delivered shall be deemed to be an original and all of which counterparts taken together shall constitute but one and the same instrument. IN WITNESS WHEREOF, this First Amendment has been duly executed on the day and year specified at the beginning hereof. Borrower: FOX KIDS WORLDWIDE, INC. By: * ----------------------------- Name: ------------------------ Title: ----------------------- Lender: FOX BROADCASTING COMPANY By: * ----------------------------- Name: ------------------------ Title: ----------------------- Senior Agent: CITICORP USA, INC. By: * ----------------------------- Name: ------------------------ Title: ----------------------- [* = Illegible signature, signed by authorized officer.] SECOND AMENDMENT TO SUBORDINATED NOTE AGREEMENT ----------------------------------------------- This SECOND AMENDMENT TO SUBORDINATED NOTE AGREEMENT (the "Second Amendment"), is made the 28th day of October, 1997, by and among FOX BROADCASTING COMPANY, a Delaware Corporation ("Lender"), FOX KIDS WORLDWIDE, INC. (together with any successors or assigns, the "Borrower"), a Delaware corporation, and CITICORP USA, INC., as the Senior Representative for the Senior Creditors (each as hereinafter defined). WHEREAS, the parties hereto are parties to a certain Subordinated Note Agreement, dated July 31, 1997 as amended by the First Amendment thereto dated September 4, 1997 (the "Note Agreement" or the "Subordinated Note Agreement") pursuant to which Note A (as hereinafter defined) was issued in the original principal amount of $104,573,000; and WHEREAS, the Borrower has requested and the Lender has agreed to provide an additional loan in the amount of $4,099,000 to be evidenced by a second Subordinated Note. WHEREAS, as a condition to the issuance of the Senior Notes (as hereinafter defined), the Borrower and Lender agreed to also subordinate the obligations hereunder to the Senior Notes Indebtedness (as hereinafter defined). WHEREAS, the parties hereto desire to amend the Note Agreement to evidence such changes and to change the Maturity Date thereunder; NOW, THEREFORE, in consideration of the mutual covenants and agreements contained herein, the parties hereto agree as follows: 1. Definitions. a) All capitalized terms used herein which are defined ----------- in the Note Agreement and not otherwise defined herein shall have their meanings as defined in the Note Agreement. b) Section 1.1 is hereby amended by inserting the following sentence at the beginning of such section. "All capitalized terms used herein which are defined in the Credit Agreement and not otherwise defined herein shall have their meanings as defined in the Credit Agreement." c) The following definitions shall be inserted into Section 1.1 in the appropriate alphabetical order: "Administrative Agent - means Citicorp USA, Inc., as the -------------------- administrative agent and the collateral agent for the Senior Lenders and the other Secured Parties, together with any successor thereto appointed pursuant to Article VIII of the Credit Agreement. Credit Agreement - means the Second Amended and Restated Credit ---------------- Agreement dated as of October 28, 1997 among FCN Holding, Inc., International Family Entertainment, Inc. and Saban Entertainment, Inc., as the Borrowers thereunder, Fox Kids Holdings, LLC, as a guarantor thereunder, the Senior Lenders, Citicorp Securities, Inc., Chase Securities, Inc. and BankBoston, N.A., as the Co-Arrangers for the Facilities referred to therein, and the Administrative Agent, as such agreement may be amended, supplemented or otherwise modified from time to time. Indentures - means, collectively, (a) the Indenture dated as of ---------- October 28, 1997 between Fox Kids and The Bank of New York, as Trustee, relating to the 9 1/4% Senior Notes due 2007, and (b) the Indenture dated as of October 28, 1997 between Fox Kids and The Bank of New York, as Trustee, relating to the 10 1/4% Senior Discount Notes due 2007, in each case as such agreement may be amended, supplemented or otherwise modified from time to time. Note A Closing Date - July 31, 1997. ------------------- Note B Closing Date - October 28, 1997. ------------------- Senior Creditors - means, collectively, the Senior Secured Creditors, ---------------- the Senior Notes Creditors and the other holders, if any, of any of the Senior Indebtedness. Senior Indebtedness - means, collectively, the Senior Secured ------------------- Indebtedness and the Senior Notes Indebtedness. Senior Notes - means, collectively, the 9 1/4% Senior Notes due 2007 ------------ and the 10 1/4% Senior Discount Notes due 2007 issued under the Indentures, in each case as amended, supplemented or otherwise modified from time to time. Senior Notes Creditors - means, collectively, the trustees under each ---------------------- of the Indentures and the holders from time to time of Senior Notes Indebtedness. Senior Notes Indebtedness - means (i) all Obligations of Fox Kids, ------------------------- whether now or hereafter existing, under or in respect of the Indentures and the Senior Notes, whether direct or indirect, absolute or contingent, and whether for principal, interest (including, without limitation, interest accruing after the filing of a petition initiating any Insolvency Proceeding (as hereinafter defined), whether or not such interest accrues after the filing of such petition for purposes of any applicable Insolvency Laws (as hereinafter defined), or is an allowed claim in such Insolvency Proceeding), premium, fees, indemnification payments, contract causes of action, costs, expenses or otherwise and (ii) any and all extensions, modifications, substitutions, amendments, renewals, refinancings, replacements and refundings of any or all of the Obligations referred to in clause (i) of this definition, and any instrument or agreement evidencing or otherwise setting forth the terms of any Indebtedness or other Obligations incurred in any such extension, modification, substitution, amendment, renewal, refinancing, replacement or refunding. Senior Representative - means (i) the Administrative Agent or (ii) --------------------- after the payment in full of all of the Senior Secured Indebtedness and the termination or expiration of all of the commitments of the Senior Secured Creditors in respect thereof, either of the trustees for the Senior Notes or the holders of a majority in aggregate principal amount of the outstanding Senior Notes of either issue. Senior Secured Creditors - means, collectively, the Administrative ------------------------ Agent, the Senior Lenders and the other Secured Parties and any other holder of any of the Senior Secured Indebtedness. Senior Secured Indebtedness - means (i) all Obligations of Fox Kids, --------------------------- whether now or hereafter existing, under or in respect of the Credit Agreement, the Notes (as defined in the Credit Agreement) and the other Loan Documents (as defined in the Credit Agreement), whether direct or indirect, absolute or contingent, and whether for principal, interest (including, without limitation, interest accruing after the filing of a petition initiating any Insolvency Proceeding, whether or not such interest accrues after the filing of such petition for purposes of any applicable Insolvency Laws, or is an allowed claim in such Insolvency Proceeding), premium, fees, indemnification payments, contract causes of action, costs, expenses or otherwise and (ii) any and all extensions, modifications, substitutions, amendments, renewals, refinancings, replacements and refundings of any or all of the Obligations referred to in clause (i) of this definition, and any instrument or agreement evidencing or otherwise setting forth the terms of any Indebtedness or other Obligations incurred in any such extension, modification, substitution, amendment, renewal, refinancing, replacement or refunding." c) The definition of "Senior Lenders" is hereby deleted in its entirety and replaced with the following: "Senior Lenders - means the banks, financial institutions and other -------------- institutional lenders from time to time party to the Credit Agreement." d) The definitions of Senior Agent, Senior Loan Agreement, and Senior Obligations are hereby deleted in their entirety. All references to Senior Obligations in the Loan Agreements shall hereafter be deemed to be references to Senior Indebtedness. 2. Amendment of Article 2. Article 2 is hereby amended in its entirety ---------------------- to read as follows: "ARTICLE 2 THE LOAN -------- 2.1 Loan A: Lender has made a loan ("Loan A") to Borrower in the original ------ principal amount of One Hundred and Four Million, Five Hundred and Seventy-Three Thousand Dollars and Zero Cents ($104,573,000.00) (the "Note A Principal Amount"), which was funded in full on the Note A Closing Date. Lender shall not have any responsibility as to the use of any of the proceeds of Loan A. Loan A was evidenced by a promissory note in favor of Lender ("Note A"). 2.2 Loan B: Lender shall make an additional loan ("Loan B") to Borrower in ------ the amount of Four Million Ninety-Nine Thousand Dollars and Zero Cents ($4,099,000.00) (the "Note B Principal Amount" and together with the Note A Principal Amount, the "Principal Amount") which shall be funded in full on the Note B Closing Date. Lender shall not have any responsibility as to the use of any of the proceeds of Loan B. Loan B shall be evidenced by a promissory note in favor of the Lender ("Note B" and together with Note A shall individually and collectively be the "Note"). 2.3 Repayment of the Loan. The Principal Amount shall be repaid on May 1, --------------------- 2008 (the "Maturity Date")." 3. Amendment of Section 3.1. Section 3.1 is hereby amended in its ------------------------ entirety to read as follows: "ARTICLE 3 INTEREST, FEES, PREPAYMENTS AND REPAYMENT ----------------------------------------- 3.1 Interest. -------- (A) Interest ("Interest") shall accrue from and after the Note A Closing Date on the Note A Principal Amount, at the rate of eleven and 80/100 percent (11.80%) per annum, compounded quarterly, on the basis of a three hundred sixty-five (365)/three hundred sixty-six (366) day year. (B) Interest shall accrue from and after the Note B Closing Date, on the Note B Principal Amount, at a rate of eleven and eleven and 51/100 percent (11.51%) per annum, compounded quarterly, on the basis of a three hundred sixty five (365) / three hundred sixty six (366) day year. (C) At the option of Borrower, and subject to the provisions of the Credit Agreement, the Fox Kids Guarantee and the Indentures and the subordination provisions set forth in Article 8 hereof, Borrower may on any Interest Payment Date elect to (i) pay any portion or all of the accrued and unpaid interest on the principal amount or (ii) elect to defer such payment until the Maturity Date as provided in Section 3.1(D). (D) If, on any Interest Payment Date, Borrower elects to defer the payment of interest until the Maturity Date as provided in Section 3.1(C) or is not permitted to pay interest as a result of the provisions of the Credit Agreement, the Fox Kids Guarantee or the Indentures or the subordination provisions set forth in Article 8 hereof, an amount equal to the Interest which accrued on the Principal Amount from the immediately preceding Interest Payment Date (or in the case of the first Interest Payment Date, which accrued from the Closing Date) through such Interest Payment Date shall be added automatically to the Principal Amount and become a part thereof (such amount of Interest being referred to as "Deferred Interest"). 4. Amendment of Section 3.1 a) Paragraph (A) of Section 3.2 is hereby ------------------------ amended by deleting the reference to "Senior Loan Agreement" contained therein and substituting the following in lieu thereof: the Credit Agreement and the other agreements, instruments or other documents evidencing or otherwise setting forth the terms of all of the Senior Indebtedness. b) Subparagraph (ii) of paragraph (A) of Section 3.2 is hereby amended by inserting the word "applicable" before the words "Closing Date" contained therein. c) Paragraph (B) of Section 3.2 is hereby amended by inserting "Subject to the provisions of the Credit Agreement, the Fox Kids Guarantee and the Indentures and the subordination provisions contained herein," at the beginning of such paragraph. 5. Amendment of Article 8. Article 8 is hereby amended in its entirety ---------------------- to read as follows: ARTICLE 8. SUBORDINATION ------------- 8.1 The aggregate principal amount owing to the Lender from time to time under this Subordinated Note Agreement, the Note and the other Loan Documents all accrued and unpaid interest thereon, and any other indebtedness evidenced by or otherwise owing in respect of this Subordinated Note Agreement, the Note and the other Loan Documents (collectively, the "SUBORDINATED INDEBTEDNESS") is and shall be subordinate and junior in right of payment and otherwise, to the extent and in the manner hereinafter set forth, to the prior payment in full of all of the Senior Indebtedness (an hereinafter defined), whether now or hereafter existing. For all purposes of this Subordinated Note Agreement, the Senior Indebtedness shall not be deemed to have been paid in full until the latest of (A) the payment in full in cash of all of the Senior Indebtedness and the expiration or termination of all of the commitments of the Secured Parties and the other holders of any of the Senior Indebtedness thereunder, (B) the expiration or termination of all of the Bank Hedge Agreements and (C) the Termination Date. 8.2 In the event of any dissolution, winding up, liquidation, arrangement, reorganization, adjustment, protection, relief or composition of Borrower or its debts, whether voluntary or involuntary, in any bankruptcy, insolvency, arrangement, reorganization, receivership, relief or other similar action or proceeding under the United States Federal Bankruptcy Code or any other federal or state bankruptcy or insolvency laws or any similar Requirements of Law of any other jurisdiction covering the protection of creditors' rights or the relief of debtors (collectively, the "Insolvency Laws"), or upon an assignment for the benefit of creditors or any other marshaling of the property, assets and liabilities of Borrower or otherwise (each, an "Insolvency Proceeding"), the Senior Creditors shall be entitled to receive payment in full of all of the Senior Indebtedness before the Lender is entitled to receive any payment or distribution of any kind or character on account of all or any of the Subordinated Indebtedness, and, to that end, any payment or distribution of any kind or character (whether in cash, property or securities) that otherwise would be payable or deliverable upon or with respect to the Subordinated Indebtedness in any such Insolvency Proceeding (including, without limitation, any payment that may be payable by reason of any other Indebtedness of Borrower being subordinated to payment of the Subordinated Indebtedness) shall be paid or delivered forthwith directly to the Senior Representative, for the ratable account of the Senior Secured Creditors and the Senior Notes Creditors, in the same form as so received (with any necessary endorsement or assignment), for application (in the case of cash) to, or to be held as collateral (in the case of noncash property or securities) for, the payment or prepayment of the Senior Indebtedness until all of the Senior Indebtedness shall have been paid in full. 8.3 No payment or distribution of any property or assets of Borrower of any kind or character (including, without limitation, any payment that may be payable by reason of any other Indebtedness of Borrower being subordinated to payment of the Subordinated Indebtedness) shall be made by or on behalf of Borrower for or on account of any Subordinated Indebtedness, unless and until all of the Senior Indebtedness shall have been paid in full or unless such payment is expressly permitted to be made under Section 8(d)(i)(D) of the Fox Kids Guarantee and Sections 10.8 and 10.9 of the Indentures. Furthermore, so long as the Senior Indebtedness shall not have been paid in full, the Lender shall not (a) ask, demand, sue for, take or receive from Borrower, directly or indirectly, in cash or other property or by setoff or in any manner (including, without limitation, from or by way of collateral), payment of all or any of the Subordinated Indebtedness, except to the extent that such payment is expressly permitted to be made under Section 8(d)(i)(D) of the Fox Kids Guarantee and Sections 10.8 and 10.9 of the Indentures, (b) commence, or join with any creditor other than the Senior Representative in commencing, or directly or indirectly cause Borrower to commence, or assist Borrower in commencing, any Insolvency Proceeding, or (c) request or accept any collateral or other security for the Subordinated Indebtedness. If the Subordinated Lender, in contravention hereof, shall commence, prosecute or participate in any Insolvency Proceeding, then the Senior Representative may intervene and interpose as a defense or plea the terms of this Subordinated Note Agreement in its own name or in the name of the Subordinated Lender. 8.4 Until such time as all of the Senior Indebtedness has been paid in full, if any Insolvency Proceeding is commenced by or against Borrower: (A) the Senior Representative is hereby irrevocably authorized and empowered (in its own name or in the name of the Lender or otherwise), but shall have no obligation, to demand, sue for, collect and receive every payment or distribution otherwise payable to the Lender in respect of this Subordinated Note Agreement and give acquittance therefor, and to file claims and proofs of claim and take such other actions (including, without limitation, voting the Subordinated Indebtedness or enforcing any security interest or other lien securing payment of the Subordinated Indebtedness) as it may deem necessary or advisable for the exercise or enforcement of any of the rights or interests of the Senior Representative or any of the other Senior Creditors under this Subordinated Note Agreement; and (B) the Lender shall duly and promptly take such action as the Senior Representative may reasonably request (i) to collect the Subordinated Indebtedness for the account of the Senior Representative, for the ratable benefit of the Senior Secured Creditors and the Senior Notes Creditors, and to file appropriate claims or proofs of claim in respect of the Subordinated Indebtedness, (ii) to execute and deliver to the Senior Representative such powers of attorney, assignments or other instruments as the Senior Representative may reasonably request in order to enable the Senior Representative to enforce any and all claims with respect to, and any security interests and other liens securing payment of, the Subordinated Indebtedness and (iii) to collect and receive any and all payments or distributions that may be payable or deliverable upon or with respect to the Subordinated Indebtedness. 8.5 All payments or distributions upon or with respect to the Subordinated Indebtedness that are received by the Lender contrary to the provisions of this Subordinated Note Agreement shall be received in trust for the benefit of the Senior Representative and the other Senior Creditors, shall be segregated from other property or funds of the Lender and shall be paid or delivered forthwith directly to the Senior Representative, for the account of the Senior Secured Creditors and the Senior Notes Creditors, in the same form as so received (with any necessary endorsement or assignment), to be applied (in the case of cash) to, or held as collateral (in the case of noncash property or securities) for, the payment or prepayment of the Senior Indebtedness until all of the Senior Indebtedness shall have been paid in full. 8.6 To the extent that Borrower, the Lender or any of their respective Subsidiaries or any other guarantor of or provider of collateral for the Senior Indebtedness shall make any payment on the Senior Indebtedness that is subsequently invalidated, declared to be fraudulent or preferential or set aside or is required to be repaid to a trustee, receiver or any other party under any applicable Insolvency Law or equitable cause (any such payment being a "Voided Payment"), then to the extent of such Voided Payment, that portion of the Senior Indebtedness that had been previously satisfied by such Voided Payment shall be reinstated and continue in full force and effect as if such Voided Payment had never been made. To the extent that the Lender shall have received any payments subsequent to the date of the initial receipt of such Voided Payment by the Senior Representative or any of the other Senior Creditors and such payments have not been invalidated, declared to be fraudulent or preferential or set aside or required to be repaid to a trustee, receiver or any other party under any applicable Insolvency Law or equitable cause, the Lender shall be obligated and hereby agrees that any such payment so made or received shall be deemed to have been received in trust for the benefit of the Senior Representative and the other Senior Creditors, and the Lender hereby agrees to pay to the Senior Representative, upon demand, the full amount so received by the Lender during such period of time to the extent necessary to fully restore to the Senior Representative and the other Senior Creditors the amount of such Voided Payment, which amount shall be applied as set forth in Section 8.5. 8.7 The Senior Representative is hereby authorized to demand specific performance of the subordination provisions of this Subordinated Note Agreement, whether or not Borrower shall have complied with any of the provisions hereof applicable to it, at any time when the Lender shall have failed to comply with any of the subordination provisions of this Subordinated Note Agreement. The Lender hereby irrevocably waives any defense based on the adequacy of a remedy at law which might be asserted as a bar to such remedy of specific performance. 8.8 The Lender will not: (A) (i) Cancel or otherwise discharge any of the Subordinated Indebtedness (except upon payment in full of all of the Senior Indebtedness or, at any time and from time to time prior thereto, to the extent that such payment is expressly permitted to be made under Section 8(d)(i)(D) of the Fox Kids Guarantee and under Sections 10.8 and 10.9 of the Indentures), (ii) convert or exchange any of the Subordinated Indebtedness into or for any other Indebtedness (except to the extent expressly permitted by the Indentures), (iii) convert or exchange any of the Subordinated Indebtedness into or for any Equity Interest in Borrower or otherwise (except to the extent expressly permitted by the Indentures) or (iv) subordinate any of the Subordinated Indebtedness to any Indebtedness of Borrower other than the Senior Indebtedness (except that no consent of the holders of the Senior Notes or either of the trustees for the Senior Notes shall be required to subordinate any of the Subordinated Indebtedness to any other Indebtedness of Borrower (although nothing herein shall limit the obligation of any holder of Indebtedness of Borrower to turn over or otherwise subordinate itself to any or all of the Senior Creditors in accordance with any subordination provisions applicable to such Indebtedness); (B) Sell, assign, pledge, encumber or otherwise dispose of any of the Subordinated Indebtedness; or (C) Permit the terms of any of the Subordinated Indebtedness to be amended, waived, supplemented or otherwise modified in such a manner as could have an adverse effect upon the rights or interests of the Senior Representative or any of the other Senior Creditors under this Subordinated Note Agreement, any of the Loan Documents (as defined in the Credit Agreement), either of the Indentures or any of the other agreements, instruments or other documents evidencing or otherwise setting forth the terms of any of the Senior Indebtedness. 8.9 No payment or distribution to the Senior Representative or any of the other Senior Creditors pursuant to the provisions of this Subordinated Note Agreement shall entitle the Lender to exercise any rights of subrogation in respect thereof, nor shall the Lender have any right of reimbursement, restitution, exoneration, contribution or indemnification whatsoever from any property or assets of Borrower or any of the other guarantors, sureties or providers of collateral security for the Senior Indebtedness, or any right to participate in any claim or remedy of the Senior Representative or any of the other Senior Creditors against Borrower or any of the Collateral, whether or not such claim, remedy or right arises in equity or under contract, statute or common law (including, without limitation, the right to take or receive from Borrower, directly or indirectly, in cash or other property or by setoff or in any other manner, payment or security on account of such claim, remedy or right), until (i) all of the Senior Indebtedness shall have been paid in full and all of the commitments of the Secured Parties and the other holders thereof shall have expired or been terminated, (ii) all of the Bank Hedge Agreements shall have expired or been terminated and (iii) the Termination Date shall have occurred. 8.10 The holders of the Senior Indebtedness may, at any time and from time to time, without any consent of or notice to the Lender or any other holder of the Subordinated Indebtedness and without impairing or releasing the obligations of the Lender hereunder: (A) change the manner, place or terms of payment of, or change or extend the time of payment of, or renew payment or change or extend the time or payment of, or renew or alter, the Senior Indebtedness (including any change in the rate of interest thereon), or amend, supplement or otherwise modify in any manner any instrument, agreement or other document under which any of the Senior Indebtedness is outstanding; (B) sell, exchange, release, not perfect and otherwise deal with any of the property or assets of any Person at any time pledged, assigned or mortgaged to secure the Senior Indebtedness; (C) release any Person liable in any manner under or in respect of the Senior Indebtedness; (D) exercise or refrain from exercising any rights against Borrower, any of the other Loan Parties or any of their respective Subsidiaries or any other Person; (E) apply to the Senior Indebtedness any sums from time to time received by or on behalf of the Senior Representative or any of the other Senior Creditors; and (F) sell, assign, transfer or exchange any of the Senior Indebtedness. 8.11 Each of Borrower and the Lender will, if reasonably requested by the Senior Representative or either of the trustees for the Senior Notes, further mark their respective books of account in such a manner as shall be effective to give proper notice of the effect of the subordination provisions of this Subordinated Note Agreement. Each of Borrower and the Lender will, at its sole expense and at any time and from time to time, promptly execute and deliver all further instruments and documents, and take all further actions, that may be necessary or that the Senior Representative or either of the trustees for the Senior Notes may reasonably deem desirable and may request in order to protect any right or interest granted or purported to be granted under the subordination provisions of this Subordinated Note Agreement or to enable the Senior Representative or any of the other Senior Creditors to exercise and enforce its rights and remedies hereunder. 8.12 The foregoing provisions regarding subordination are and are intended solely for the purpose of defining the relative rights of the holders of the Senior Indebtedness, on the one hand, and the holders of the Subordinated Indebtedness, on the other hand. Such provisions are for the benefit of the holders of the Senior Indebtedness and shall inure to the benefit of, and shall be enforceable by, the Senior Representative, on behalf of itself and the other Senior Creditors, directly against the holders of the Subordinated Indebtedness, and no holder of the Senior Indebtedness shall be prejudiced in its right to enforce the subordination of any of the Subordinated Indebtedness by any act or failure to act by Borrower or any Person in custody of its property or assets. The subordination provisions herein shall constitute a continuing offer to each and every holder of Senior Indebtedness from time to time and such holders are intended third party beneficiaries hereof. Nothing contained in the foregoing provisions is intended to or shall impair, as between Borrower and the holders of the Subordinated Indebtedness, the obligations of Borrower to such holders. 8.13 (A) Borrower agrees to pay, upon demand therefor, all of the reasonable and properly documented out-of-pocket costs and expenses (including, without limitation, reasonable fees and expenses of counsel) incurred by the Senior Representative or any of the other Senior Creditors in enforcing the provisions of this Subordinated Note Agreement . (B) Borrower hereby waives promptness, diligence, presentment for payment, demand, notice of dishonor and protest and any other notice with respect to this Subordinated Note Agreement . (C) None of the rights or interests of the Lender in this Subordinated Note Agreement may be assigned or otherwise transferred thereby to any Person other than a member of the TNCL Group or the Saban Group without the prior written consent of Borrower and the Senior Representative. (D) No amendment, waiver or modification of this Subordinated Note Agreement (including, without limitation, the subordination provisions hereof), and no consent to any departure herefrom, shall be effective unless the same shall be in writing and signed by the Lender and, if any such amendment, waiver or modification of this Subordinated Note Agreement (including, without limitation, the subordination provisions hereof) could adversely affect the rights or interests of the Senior Representative or any of the other Senior Creditors under or in respect of this Subordinated Note Agreement, any of the Loan Documents (as defined in the Credit Agreement), either of these Indentures or any of the other agreements, instruments or other documents evidencing or otherwise setting forth the terms of any of the Senior Indebtedness in any manner, signed by the Senior Representative and/or each of the trustees for the Senior Notes, and then, in each case, such waiver, modification or consent shall be effective only in the specific instance and for the specific purpose for which given; provided that neither of the trustees for the Senior Notes shall be required to consent to any such amendment, waiver or modification that would not adversely affect the rights or interests of any of the Senior Notes Creditors. (E) No failure on the part of the Lender or the Senior Representative or any of the other Senior Creditors to exercise, and no delay in exercising, any right, power or privilege hereunder shall operate as a waiver thereof or a consent thereto; nor shall a single or partial exercise of any such right, power or privilege preclude any other or further exercise thereof or the exercise of any other right, power or privilege. The remedies provided herein are cumulative and are not exclusive of any remedies provided by applicable law." 6. Miscellaneous. ------------- 6.1 On and after the date hereof, each reference in the Note Agreement to the terms "this Agreement," "hereunder," "hereof," "hereby," "herein" or other similar terms shall be deemed to be a reference to the Note Agreement as further amended by this Second Amendment. 6.2 Except as hereby amended, the Note Agreement shall continue in full force and effect. 6.3 This Second Amendment may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed and delivered shall be deemed to be an original and all of which counterparts taken together shall constitute but one and the same instrument. IN WITNESS WHEREOF, this Second Amendment has been duly executed on the day and year specified at the beginning hereof. Borrower: FOX KIDS WORLDWIDE, INC. By: * --------------------------- Name: ---------------------- Title: --------------------- Lender: FOX BROADCASTING COMPANY By: * --------------------------- Name: ---------------------- Title: --------------------- Senior Representative: CITICORP USA, INC. By: * --------------------------- Name: ---------------------- Title: --------------------- [* = Illegible signature, signed by authorized officer.] THIS NOTE AND THE OBLIGATIONS EVIDENCED HEREBY ARE SUBORDINATED IN THE MANNER AND TO THE EXTENT SET FORTH IN THE AMENDED AND RESTATED SUBORDINATED NOTE AGREEMENT, DATED AS OF OCTOBER 28, 1997 AS AMENDED. EACH HOLDER OF THIS NOTE, BY ITS ACCEPTANCE HEREOF, SHALL BE BOUND BY THE PROVISIONS OF THE NOTE AGREEMENT. SUBORDINATED PROMISSORY NOTE ---------------------------- No. B-1 $4,099,000 October 28, 1997 FOR VALUE RECEIVED, the undersigned, Fox Kids Worldwide, Inc., a Delaware corporation, having an office at 10960 Wilshire Boulevard, Los Angeles, CA 90024 ("Borrower"), hereby promises to pay to the order of Fox Broadcasting Company, a Delaware corporation (the "Lender"), having an office at 10201 West Pico Boulevard, Los Angeles, CA, 90035, or registered assigns, in lawful money of the United States, by wire transfer in immediately available federal funds, the principal amount of Four million ninety nine thousand and 00/100 dollars ($4,099,000), loaned by Lender to Borrower pursuant to the Subordinated Note Agreement dated July 31, 1997, among Borrower, Lender and Citicorp USA, Inc., as amended by the First Amendment thereto dated September 4, 1997 and the Second Amendment thereto dated October 28, 1997, (as further amended and modified from time to time, the "Note Agreement"), together with additions to such principal amount and interest thereon as set forth in the Note Agreement, which interest shall accrue from and after the date hereof on the outstanding principal amount of this Note, and such principal amount and interest thereon shall be payable at such times as set forth in the Note Agreement. Lender is hereby authorized by Borrower to record on Schedule A to this Note (or on a supplemental Schedule thereto) the amount of the Loan and the amount of each payment or prepayment of principal thereof received by Lender, it being understood, however, that failure to make any such notation shall not affect the rights of Lender or the obligations of Borrower hereunder in respect of this Note. At Lender's option, Lender may record such matters in their internal records rather than recording such matters on such Schedule. This Note is referred to in, and is issued pursuant to, the Note Agreement and is entitled to all of the benefits of the Note Agreement and the Loan Documents. All of the terms, covenants and conditions of the Note Agreement and all other instruments evidencing the indebtedness hereunder (including, without limitation, the Loan Documents), are hereby made a part of this Note and are deemed incorporated herein in full. The Note Agreement, among other things, provides for the acceleration of the then outstanding indebtedness hereunder during the existence of an Event of Default, upon the terms and conditions specified therein. All capitalized terms used herein, unless otherwise specifically defined in this Note, shall have the meanings ascribed to them in the Note Agreement. The Loan and all of the Obligations shall be subordinate to the Senior Indebtedness, in the manner and to the extent set forth in the Note Agreement. Each transferee of this Note (or any Note or Notes issued in exchange or substitution therefor), by acceptance of this Note (or any Note or Notes issued in exchange or substitution therefor), agrees to such subordination. To the fullest extent permitted by applicable law, Borrower, for itself and its legal representatives, successors and assigns, expressly waives presentment, demand, protest, notice of dishonor, notice of nonpayment, notice of maturity, notice of protest, presentment for the purpose of accelerating maturity and diligence in collection, and consents that Lender may (with the consent of Borrower) extend the time for payment or otherwise modify the terms of payment of any part or the whole of the debt evidenced hereby. This Note shall be governed by, and construed and enforced in accordance with, the laws of the State of New York, without regard to conflicts of laws principles. IN WITNESS WHEREOF, Borrower has caused this Note to be duly executed as of the date first above written. FOX KIDS WORLDWIDE, INC. By: /s/ Jay Itzkowitz __________________________ Name: Title: Schedule A ----------
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EX-10.49 7 AMENDMENT TO AFFILIATION AGREEMENT DATED 6/11/97 Portions of this exhibit have been deleted and filed separately with the Securities and Exchange Commission pursuant to a request for confidential treatment. The redacted portions are identified by brackets with the character "*" indicating deleted information. [*] CONFIDENTIAL TREATMENT REQUESTED EXHIBIT 10.49 June 11, 1997 VIA FACSIMILE - ------------- Louis A. Isakoff, Esq. Senior Vice President and General Counsel International Family Entertainment, Inc. P.O. Box 2050 Virginia Beach, Virginia 23450-2050 RE: Affiliation Agreement dated as of December 28, 1989 (the "Agreement"), by and between Satellite Services, Inc. ("Affiliate") and The Family Channel ("FAM"), a division of International Family Entertainment, Inc. ("IFE"), as amended by an Amendment dated as of January 1, 1994 (the "First Amendment") and a Letter of Amendment dated May 16, 1996 (the "Second Amendment") Dear Lou: This Letter of Amendment (the "Third Amendment") shall amend the above- referenced Agreement. Terms not defined in this Third Amendment shall have the definitions given to them in the Agreement or the Second Amendment, as appropriate. In consideration of the mutual promises herein contained and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, FAM and Affiliate agree as follows: 1. Carriage Guarantee. Section 3(a) of the Agreement is hereby amended ------------------ by deleting the language that begins with the words "Notwithstanding the foregoing. . ." and continuing through the end of Section 3(a) as it appears in the Agreement (but not deleting the language added to Section 3(a) by means of the Second Amendment) and adding in lieu thereof the following: Notwithstanding the foregoing and Section 7(g) hereof, during the Term, Affiliate shall meet the following penetration requirements for carriage of the FAM Service: (1) The total number of FAM Subscribers shall be no less than [*]% of the number of Basic Subscribers (as defined below) in cable television systems that meet, as of the time compliance is tested, the System [*] CONFIDENTIAL TREATMENT REQUESTED qualifications of Exhibit A hereto and either: (A) are carrying the FAM Service on the date hereof; or (B) are acquired by Affiliate or an affiliate of Affiliate after the date hereof and are carrying the FAM Service on the date of acquisition. "Basic Subscribers" shall mean, with respect to each System, the total number of subscribers receiving video programming services in such System, excluding any subscriber receiving solely the "lifeline" level of service and/or pay or pay-per-view services. "Lifeline" shall have the definition set forth in Exhibit B to the Second Amendment. Affiliate may exclude from the foregoing calculation any System that is sold or divested by Affiliate or an affiliate of Affiliate after the date hereof or ceases to meet the System Qualifications of Exhibit A hereto. (2) The penetration of the FAM Service in any System that meets the System qualifications of Exhibit A hereto and is carrying the FAM Service shall, during the Term, be no less than [*]% of the number of Basic Subscribers in such System; provided, however, that if the penetration of the FAM Service in any System is less than [*]% on the date hereof, Affiliate shall not be obligated to reposition the FAM Service in such System during the Term. In addition, if the penetration of the FAM Service in any System hereafter acquired by Affiliate or an affiliate of Affiliate is less than [*]%, Affiliate shall not be obligated to reposition the FAM Service in such System during the Term, and such System will be excluded from the [*]% calculation set forth in subparagraph (1) above. (3) Notwithstanding the foregoing, nothing herein shall obligate Affiliate or any affiliate of Affiliate to launch or carry the FAM Service in any System that fails, now or in the future, to meet the System qualifications of Exhibit A hereto, or that meets the System qualifications of Exhibit A hereto and is not carrying the FAM Service on the later of the date hereof or the date of acquisition of the System. (4) The Systems shall distribute the FAM Service on a full-time basis only; provided, however, that any System which distributes the FAM Service on a part-time basis as of the date hereof or on the date of acquisition of such System, whichever is later, shall have the right to continue distributing the Service on a part-time basis during 2 [*] CONFIDENTIAL TREATMENT REQUESTED the Term of this Agreement. 2. Combining Satellite and Cable Distribution. Section 3(c) of the ------------------------------------------ Agreement shall be amended by adding at the end thereof the following: FAM and Affiliate expressly agree that, notwithstanding any other provision of this Agreement to the contrary, Affiliate may deliver the FAM Service to its Subscribers by any of the technologies provided for herein and/or in more than one such technology. Without limiting the foregoing and notwithstanding the second sentence of Section 2(a) hereof, Affiliate is expressly authorized to distribute the FAM Service to customers who receive the FAM Service and other video programming services from a combination of satellite and terrestrial distribution modalities. The Fees set forth in Section 7(a)(1) hereof shall apply to any such FAM Subscriber and Affiliate shall be required to pay only one Fee for any FAM Subscriber, even if that FAM Subscriber receives the FAM Service via more than one technology. Notwithstanding the foregoing, if a subscriber receives the FAM Service via a distribution modality for which the subscriber pays a separate fee from any fee paid to a distribution modality affiliated with Affiliate, the foregoing provision shall not eliminate Affiliate's obligation to pay Fees for such subscriber under this Agreement. 3. Content Restrictions. The words "sports series and specials," shall -------------------- be deleted from Section 2(e) and Section 6(b) of the Agreement and a new Section 6(d) shall be added to the Agreement, as follows: (d) Notwithstanding any other provision hereof, in particular Section 2(e) hereof and the foregoing provisions of this Section 6, the FAM Service shall not contain [*] 3 [*] CONFIDENTIAL TREATMENT REQUESTED [*] 4. Effective Date. This Agreement shall be effective on the earlier to -------------- occur of (i) the Closing of the Contribution under the Contribution and Exchange Agreement by and among Liberty Media Corporation, Liberty IFE, Inc., and Fox Kids Worldwide, Inc., dated June 6, 1997, and (ii) the Effective Time of the Merger (as defined in the Merger Agreement by and among Fox Kids Worldwide, Inc., Fox Kids Merger Corporation, and International Family Entertainment, Inc., dated June 6, 1997.) If not effective prior to such time, this Amendment shall terminate upon the expiration or termination of the Merger Agreement in Accordance with its terms. If the foregoing accurately reflects your understanding, please so indicate by executing this Third Amendment in the space indicated and returning it to me. Very truly yours, /s/ Jedd S. Palmer PRESIDENT, SATELLITE SERVICES, INC. ACCEPTED AND AGREED TO FOR THE FAMILY CHANNEL AND FOR INTERNATIONAL FAMILY ENTERTAINMENT, INC. 4 THIS 11TH DAY OF JUNE, 1997: By: /s/ Tim Robertson ------------------------------ Name: Tim Robertson ---------------------------- Title: --------------------------- 5 EX-10.50 8 LETTER OF AMENDMENT DATED 5/16/96 Portions of this exhibit have been deleted and filed separately with the Securities and Exchange Commission pursuant to a request for confidential treatment. The redacted portions are identified by brackets with the character "*" indicating deleted information. EXHIBIT 10.50 EXECUTION COPY -------------- May 16, 1996 Mr. Louis A. Isakoff Senior Vice President and General Counsel IFE Inc. P.O. Box 2050 Virginia Beach, Virginia 23450-2050 RE: Affiliation agreement dated as of December 28, 1989, (the "Agreement") by and between Satellite Services, Inc. ("Affiliate") and The Family Channel ("FAM"), a division of International Family Entertainment, Inc. ("IFE") Dear Lou: The parties hereto desire to amend the above-referenced Agreement to reflect their understanding as of January 1, 1994. Terms not defined in this Letter of Amendment shall have the definition given to them in the Agreement. In consideration of the mutual promises herein contained and other good and valuable consideration, the receipt of which is acknowledged, FAM and Affiliate agree as follows: 1. Nationwide, Third Party SMATV Rights. Section 3(a) of the Agreement ------------------------------------ is hereby amended by adding at the end thereof the following new sentence: "Notwithstanding the foregoing provisions of this Section 3(a), FAM hereby grants to Affiliate and Affiliate hereby accepts the nationwide, non-exclusive right to exhibit and distribute the FAM Service to any SMATV owned and operated by a third party, provided that the rates for the exhibition and distribution of the FAM Service to such a SMATV shall be equal to the Fees set forth in Section 7(i) (B) hereof, and provided further that FAM has the right to deliver the FAM Service to each such SMATV. The customers served by such SMATV shall all be considered Subscribers for purposes hereof pursuant to the provisions of Section 2(b) hereof." 2. Compression Rights. A new Section 3(c) shall be added to the ------------------ Agreement, as follows: "(c) FAM hereby grants Affiliate, and any affiliate of Affiliate, the right to receive the signal of the Service, to digitize, compress, modify, replace or otherwise technologically manipulate the signal, and to transmit the signal as so altered (the "Altered Signal") to a satellite, or to a location within the continental United States designated by Affiliate (in its sole and absolute discretion), for redistribution to terrestrial or other reception sites capable of receiving and utilizing the Altered Signal, within the United States its territories, commonwealths and possessions. FAM hereby grants Affiliate, any affiliate of Affiliate, and any System having a valid affiliation agreement with FAM the right to deliver the Altered Signal for the uses set forth in the Agreement, and the right to deliver the Altered Signal to any third party, provided that such third party is authorized by FAM pursuant to a valid agreement or otherwise to receive the signal of the Service; and provided, further that no such alteration, transmission, redistribution, reception or other use will cause a material change in an average viewer's perception of the principal video or principal audio presentation of the Service. Furthermore, FAM shall not change the signal of the Service in such a way as technically or technologically to defeat, or otherwise interfere with, Affiliate's, any affiliate of Affiliate's, or any System's rights under this Section 3(c) . In the event FAM interferes with or otherwise prevents receipt, digitization, compression, modification, replacement, utilization or manipulation of the signal of the Service by Affiliate, any affiliate of Affiliate, or any System pursuant to the terms of this Section 3(c), then Affiliate shall have the right to delete any or all Systems from Schedule 1 of this Agreement, immediately, and to discontinue carriage, immediately, of the Service on any or all Systems." 3. Signal Hand-Off Rights. A new Section 3(d) shall be added to the ---------------------- Agreement, as follows: "(d) FAM hereby gives its consent to permit Affiliate and any affiliate of Affiliate to transmit by cable or other transmission system the signal of the Service as received at the headend of any System to any third party; provided that the cable or other transmission system of such third party is connected to the cable or other transmission system of such System, and provided further that such third party is authorized by FAM to receive the signal of the Service. Affiliate will, at FAM's request, terminate delivery to any such third party, provided FAM indemnifies Affiliate from any claim that FAM wrongfully directed Affiliate to terminate delivery of the Service to such third party. Affiliate will not terminate delivery to any such third person without six months' prior written notice to FAM, which notice FAM may waive in FAM's sole and absolute discretion. FAM also hereby gives its consent to permit Affiliate and any affiliate of Affiliate during the Term to receive by cable or other transmission system the signal of the Service from any third party, provided that such third party is connected to the cable or other transmission system of any System." 4. Legally required data streams. A new Section 3(e) shall be added to ----------------------------- the Agreement, as follows: "(e) In the event that Affiliate is required by law, decree, ordinance or administrative action to pass through to any of its customers any material contained within the signal of the FAM Service (including but not limited to ratings or V-Chip data), FAM shall not commingle such material with material Affiliate is not required to pass through to its customers and shall not co- locate such material on lines of the vertical blanking interval with material Affiliate is not required to pass through to its customers. 2 [*] CONFIDENTIAL TREATMENT REQUESTED 5. Term. Section 4 of the Agreement shall be deleted in its entirety, and ---- the following language shall be added in lieu thereof: "4. Term. The term of this Agreement (the "Term") shall commence on January ---- 1, 1990 and shall, unless sooner terminated pursuant to the terms hereof or extended by agreement of the parties hereto, expire on December 31, 2009. Affiliate shall have a one-time option to terminate this Agreement effective December 31, 2006, provided written notice thereof is given to FAM prior to December 31, 2005; and provided further the parties shall negotiate in good faith a renewal agreement to be effective December 31, 2006 but the parties shall be under no obligation to reach such a renewed agreement." 6. Fees. Sections 7(a) (i) and (ii) of the Agreement shall be deleted in ---- their entirety and the following language shall be added in lieu thereof: "(i) (A) For the period prior to January 1, 1996, Affiliate shall pay the monthly per subscriber Fees set forth in the provision of the Agreement superseded by this amendment. "(i) (B) For the period January 1, 1996 to December 31, 2001 Affiliate shall pay the following monthly per subscriber Fees: 1996 1997 1998 1999 2000 2001 $[*] $[*] $[*] $[*] $[*] $[*] [*] "(i) (C) [*] "(i) (D) [*] 3 [*] CONFIDENTIAL TREATMENT REQUESTED [*] 7. A la Carte and Packaging. A new Section 17 (j) shall be added to the ------------------------ Agreement, as follows: "(j) A la Carte and Packaging. In a System that is carrying FAM as of ------------------------ the date hereof, Affiliate may carry FAM a la carte, or on any level or in any package of services, provided it does so according to the terms and provisions of Exhibit B attached hereto and incorporated herein by this reference. In a System that is not carrying FAM on the basic or expanded basic level of service as of the date hereof, or in any system that becomes a System after the date hereof and is not carrying 4 [*] CONFIDENTIAL TREATMENT REQUESTED FAM on the basic or expanded basic level of service as of the date hereof, Affiliate may, after good faith consideration of carrying FAM on the basic or expanded basic level of service, carry FAM a la carte, or on any level or in any package of services, and shall pay the following amounts to FAM in lieu of any Fees notwithstanding any provision in Section 7 of the Agreement: [*] In no event may the a la carte or package amount be less than any Fee provided for in Section 7(a) (i) hereof." 8. On-Air Acknowledgment. A new Section 17(k) shall be added to the --------------------- Agreement as follows: "(k) On-Air Acknowledgment. FAM shall provide an audible --------------------- acknowledgment one time each day, in alternating day parts, stating that programming on the Family Channel has been paid for in part by fees paid by the local cable company. Subject to the provisions hereof, the scheduling of the acknowledgment and the format and style of the acknowledgment shall be at the sole discretion of FAM." 9. Effective Date. This Letter of Amendment shall be effective as of -------------- January 1, 1994. Except as specifically provided in this Letter of Amendment, the Agreement shall remain in full force and effect. 10. Audit Rights. A new Section 8(d) shall be added to the Agreement as ------------ follows: "(d) FAM shall keep and maintain accurate books and records of all matters directly relating to this Agreement including, without limitation, all books and records necessary for FAM to demonstrate its compliance with Section 7(g) hereof, in accordance with generally accepted accounting principles. During the Term and for one (1) year after the termination of this Agreement, such books and records shall be available to Affiliate for inspection and audit, during normal business hours, at Affiliate's expense, at FAM's offices upon reasonable notice to FAM; provided, however, that any inspection and audit of FAM's books and records to determine compliance with the provisions of Section 7(g) hereof shall be conducted with reference to books and records relating to the then current 5 calendar year and the two prior calendar years only, and shall be conducted by a public accounting firm or an auditing firm that audits or otherwise provides services to both Affiliate and FAM or an independent accounting firm mutually agreed upon in good faith by the parties, provided that such accounting firm is one of the six largest accounting firms in the United States. If the parties cannot in good faith mutually agree upon such independent accounting firm within ninety (90) days, then Affiliate shall select an independent accounting firm to conduct such audit, provided that such independent accounting firm is one of the six largest accounting firms in the United States. The public accounting firm or auditing firm that conducts the audit shall be referred to hereinafter as the "Auditor." If, as a result of the examination performed hereunder by the Auditor, the Auditor determines that FAM has fully complied with Section 7(g) hereof, then such Auditor shall provide written notice to the parties stating only that FAM has complied with Section 7(g), and under no circumstances shall any information acquired during the course of the examination be disclosed to Affiliate by the Auditor and all such information shall remain strictly confidential. If, as a result of the examination performed hereunder, the Auditor determines that FAM has failed to comply with Section 7(g), then the Auditor shall discuss in good faith for a reasonable time with FAM the provisions at issue. In the event that the Auditor and FAM resolve the provisions at issue and conclude that FAM, in fact, has complied with Section 7(g), then the Auditor shall provide written notice to the parties stating only that FAM has complied with Section 7(g), and under no circumstances shall any information acquired during the course of the Examination and/or discussions be disclosed to Affiliate by the Auditor and all such information shall remain strictly confidential. In the event that the Auditor and FAM cannot resolve the provisions at issue and the Auditor believes FAM has not complied with Section 7(g), then FAM shall have the option, at FAM's sole election, either (i) to grant to Affiliate the more favorable provision that was the subject of FAM's noncompliance with Section 7(g) (in which case under no circumstances shall any information acquired during the course of the examination be disclosed to Affiliate by the Auditor and all such information shall remain strictly confidential), or (ii) to authorize the Auditor to provide to Affiliate only that limited information acquired during the course of the examination as is necessary for Affiliate to pursue its claim or claims under this Agreement; any information which is not so necessary shall not be disclosed to Affiliate by the Auditor and shall remain strictly confidential. Affiliate's right to audit FAM's compliance with Section 7(g) hereof shall be limited to once in any twelve (12) month period during the Term and once in the year after termination of this Agreement. Affiliate must make any claim against FAM pursuant to Section 7(g) hereof within the earlier of (i) three (3) months after Affiliate's auditor leaves FAM's offices and (ii) thirty-nine (39) months after the close of the month that gave rise to such claim." 6 11. MFN Amendment. Section 7(g) of the Agreement is hereby amended by ------------- adding at the end thereof the following new sentence: "For purposes of this Section 7(g), and for purposes of comparing the actual rate per subscriber to the Service payable by Affiliate to the actual rate per subscriber to the Service payable by a third party that is distributing the Service via a common delivery system through which multiple parties may distribute services (e.g., VDT or OVS providers), the ---- calculation of the penetration of the Service for such third party shall be based on the total number of customers receiving programming services through such common delivery system, regardless of the number of distributors providing services through such common delivery system." 12. VDT Rights. Section 3 (a) of the Agreement is hereby amended by ---------- adding the following sentence at the end of the fourth sentence of Section 3 (a): "Notwithstanding any other provision hereof, FAM hereby grants to Affiliate and Affiliate hereby accepts the non-exclusive right to exhibit and distribute the FAM Service, on a retail basis, in the United States, the District of Columbia and the territories, possessions and commonwealths of the United States by any' system or enterprise (regardless of whether such system or enterprise is affiliated with the owner and/or operator of any required distribution equipment) that distributes audio/visual signals and/or programming over the distribution facilities. of a common carrier by means of a video dial tone connection, open video system or other common carrier arrangement, whether now existing or developed in the future ("VDT"), at the Fees set forth in Section 7 hereof." Each such system or enterprise shall be a System for all purposes hereof. 13. Compression, digitization or encryption switch. Section 5(c) of the ---------------------------------------------- Agreement is hereby amended by adding at the end thereof the following two new sentences: "Notwithstanding the foregoing, In the event Network (x) compresses the signal of the Service, (y) digitizes the signal of the Service, or (z) changes the method of encryption of the signal of the Service, in such a manner that the signal of the Service cannot be received or utilized by a System or Systems, Network shall, at its sole and exclusive option, either promptly reimburse each System for the cost to purchase and/or deploy the equipment necessary for such System to receive or utilize the signal of the Service, or promptly supply to each System all of the equipment necessary for such System to receive or utilize the signal of the Service. The preceding sentence shall only apply to Systems carrying the signal of the Service as of the date of such a compression, digitization or encryption change, and 7 any System that is so compensated shall rebate to Network such compensation in the event it discontinues carriage of the Service earlier than one year after receiving such compensation." If the foregoing accurately reflects your understanding, please so indicate by executing this Letter of Amendment in the space indicated and returning it to me. Very truly yours, /s/ Jedd S. Palmer Jedd S. Palmer, President ACCEPTED AND AGREED TO FOR THE FAMILY CHANNEL AND FOR INTERNATIONAL FAMILY ENTERTAINMENT, INC. BY /s/ Craig R. Sherwood ___________________________ (Name) May 28, 1996 ___________________________ (Date) cc: Tim Robertson Larry Dantzler Craig Sherwood 8 [*] CONFIDENTIAL TREATMENT REQUESTED EXHIBIT B --------- 1. A la carte. Affiliate shall have the right to carry the Service on an ---------- a la carte basis in any System where the Service is also carried in the most highly penetrated package of service other than the broadcast basic package of services. Affiliate shall pay FAM the Fees set forth in Section 7(i) hereof in respect of such customers receiving the Service on an a la carte basis. 2. Packages. Affiliate shall have the right in any System to include the -------- Service in a package of other services containing at least three other programming networks (the "Mini-pack"). The programming networks included in the Mini-pack shall be subject to FAM's prior written consent, provided that no such consent shall be necessary if the Mini-pack includes at least three of the following networks: WTBS, USA, Nickelodeon, TNT, ESPN, CNN, Headline News, Discovery, AMC, TNN, WOR and WGN. 3. Packaging Fees. In the event that the Service is received by -------------- [*] of Affiliate's total cable television subscriber universe, Affiliate shall pay a total monthly license fee, in respect of Affiliate's cable television subscribers receiving the Service in a package of services, that is equal to the Fees set forth in Section 7(i) hereof. In the event that the Service is received by [*] of Affiliate's total cable television subscriber universe, Affiliate shall pay a total monthly license fee in respect of Affiliate's cable television subscribers receiving the Service on an a la carte or package basis, that is equal to the per subscriber rates, including tier and a la carte rates, set forth below. a. The a la carte rate shall be as follows: (i) [*] (ii) [*] (iii) [*] 9 [*] CONFIDENTIAL TREATMENT REQUESTED (iv) [*] (b) The package rate shall be as follows: (i) in Systems where the Service is received by [*] of the System's subscribers, Affiliate shall pay FAM a per subscriber license fee for each subscriber receiving the Service in a package of services equal to the Fees set forth in Section 7(i) for the pertinent month; (ii) in Systems where the Service is received by [*] of the System's subscribers, Affiliate shall pay FAM a per subscriber license fee for each subscriber receiving the Service in a package of services equal to the Fees set forth in Section 7(i) for the pertinent month multiplied by two; (iii) in Systems where the Service is received by [*] of the System's subscribers, Affiliate shall pay FAM a per subscriber license fee for each subscriber receiving the Service in a package of services equal to the Fees set forth in Section 7(i) for the pertinent month multiplied by two-and- one-half; (iv) in Systems where the Service is received by [*] of the System's subscribers, Affiliate shall pay FAM a per subscriber license fee for each subscriber receiving the Service in a package of services equal to the Fees set forth in Section 7(i) for the pertinent month multiplied by three. 4. The "Benchmark". If at any time the Service is received by [*] ---------------- of Affiliate's total cable television subscriber universe (excluding lifeline subscribers and subscribers in systems purchased or otherwise acquired after the date hereof and who were not previously receiving the Service) (the "Benchmark"), then FAM may terminate this Exhibit B (but not the Agreement) unless Affiliate cures the subscriber shortfall within sixty (60) days of the end of the month in which the Benchmark was missed. For the purposes of this Exhibit B, "lifeline subscribers" shall mean those subscribers of Affiliate receiving a package of services that includes only the following services, in any combination: the signals of local broadcast television stations, no more than four satellite-delivered cable television networks and any number of services that are services other than satellite-delivered cable television networks. 5. Reports. Affiliate shall report to FAM, no later than the forty-fifth ------- (45th) day following the end of each quarter in which this Exhibit B is effective, the following information in respect of each System carrying the Service in a package of services: the number of total subscribers receiving cable service and the number of total subscribers receiving the Service via a Mini-pack carriage. 10 EX-10.51 9 PROGRAM TIME AGREEMENT DATED 1/5/90 Exhibit 10.51 PROGRAM TIME AGREEMENT ---------------------- PROGRAM TIME AGREEMENT ---------------------- TABLE OF CONTENTS
Page ---- 1. Programming ............................................ 1 2. Facilities ............................................ 2 3. Time ............................................ 3 (i) Morning.............................. 4 (ii) Prime Time........................... 4 (iii) Late Night........................... 4 4. Fee ............................................ 5 5. Term ............................................ 5 6. Telethon ............................................ 7 7. Transmission of CBN Programming ............................................ 7 8. Assignment ............................................ 7 9. Indemnification ............................................ 8 10. Notices ............................................ 9 11. Remedies ............................................ 11 12. Headings ............................................ 12 13. Waiver ............................................ 12 14. Attorneys' Fees ............................................ 12 15. Severability ............................................ 12 16. Counterparts ............................................ 13 17. Miscellaneous ............................................ 13 18. Governing Law ............................................ 13
2 NPA EXHIBIT D PROGRAM TIME AGREEMENT ---------------------- This Agreement is made and entered into by and between THE CHRISTIAN BROADCASTING NETWORK, INC., a Virginia corporation ("CBN"), and INTERNATIONAL FAMILY ENTERTAINMENT, INC., a Delaware corporation ("IFE"). W I T N E S S E T H: -------------------- WHEREAS, IFE is purchasing from CBN, and CBN is selling to IFE, certain assets used in connection with The Family Channel, as defined in the Network Purchase Agreement, dated December 11, 1989, by and between CBN and IFE (the "Purchase Agreement"); and WHEREAS, IFE and CBN recognize that an important part of such purchase and sale is the provision by IFE of certain blocks of program time to be used for the distribution of certain programming supplied by CBN on the terms and conditions set forth herein. NOW, THEREFORE, in consideration of the foregoing and of the following terms, the parties hereto agree as follows: 1. Programming. Subject to the terms and conditions of this Agreement, ----------- IFE shall make available to CBN the Program Time (as hereinafter defined). CBN agrees to use the Program Time solely for the purpose of distributing the CBN Programming (as hereinafter defined) and, in the case of the Program Time referred to in Section 6, the Telethon Programming. IFE shall authorize CBN to utilize the Program Time provided hereunder for, among other 3 purposes, the distribution of CBN supplied programming to broadcast stations and shall authorize such broadcast stations to receive IFE satellite feeds for said purpose and to broadcast such CBN supplied programming on a simultaneous or delayed basis to the public. As used in this Agreement, the term "CBN Programming" means (i) the television programming currently distributed by CBN and known as "The 700 Club", "Straight Talk" and "CBN News" and (ii) any other television programming produced by or on behalf of CBN consisting of religious, inspirational, informational, current affairs and/or entertainment programs; provided, however, that in no event shall the CBN Programming consist of or - -------- ------- include any programming or material which (A) advertises, promotes or contains desirable connotations in reference to alcohol, tobacco products, narcotics, gambling, contraceptives, sexual promiscuity, the occult, astrology, horoscopes, or "X" or "R" rated movies or (B) consists of any "X" or "R" rated films. CBN covenants that future programming shall be of a religious, inspirational, informational, current affairs or entertainment nature having appeal to a non- denominational or interdenominational Christian audience. 2. Facilities. ---------- (a) The Program Time (as defined in Section 3) shall be provided to CBN on and the CBN Programming distributed during the Program Time shall be transmitted by IFE on all domestic (United States) satellite feeds of The Family Channel made by IFE to cable television systems or individual subscribers, multipoint distribution systems (MDS or MMDS), direct to home (DBS) operations, and all other domestic distributions of The Family Channel. (b) CBN may supply CBN Programming to IFE via, at the option of CBN, microwave feed, videotape, or satellite, but CBN shall consult with IFE in selecting such method 4 of supply and shall not unreasonably withhold its consent to any preference stated by IFE with respect thereto. (c) IFE shall take such reasonable action as may be necessary to permit domestic broadcast television stations to receive IFE satellite feeds of the CBN Programming during the Program Time for the purpose of broadcasting such CBN Programming to the public on a simultaneous or delayed basis. IFE shall not be required to take any unreasonable action or incur any unreasonable expense in order to provide the Program Time, or provide the Program Time to the extent that any violation of any applicable law, rule, regulation, judgment, order or decree now or at any time hereafter in effect would result or to the extent that the programming distributed by CBN does not meet the standards set forth in Section 1 hereof or, in IFE's good faith judgment, would result in any liability or claim of any type contemplated by Section 9 hereof. 3. Time. ---- (a) The following blocks of program time, together with the time referred to in Section 6 hereof, shall constitute the "Program Time": (i) Morning. A continuous one and one-half (1-1/2) hour block ------- ("Morning Block") of program time, Monday through Friday, between the hours of 9:00 a.m. and Noon, Eastern and Pacific Time; (ii) Prime Time. A continuous one hour block ("Prime Block") of ---------- program time, Monday through Friday, between the hours of 10:00 p.m. and Midnight, Eastern and Pacific Time; and (iii) Late Night. A continuous one hour block ("Night Block") of ---------- program time, Tuesday morning through Saturday morning, between the hours of 2:00 a.m. and 4:00 a.m., Eastern and Pacific Time. 5 (b) On the date hereof, the Morning Block shall commence at 10:00 a.m., the Prime Block shall commence at 10:00 p.m., and the Night Block shall commence at 2:00 a.m., all of the foregoing times being Eastern and Pacific Time. IFE may change the precise commencement time of each such block so long as (i) IFE gives to CBN ninety (90) days prior written notice of such change, (ii) IFE shall not have changed the commencement time of the affected block within three hundred sixty-five (365) days immediately preceding the effective date of such proposed change, (iii) such changed commencement time falls on the hour or on the half hour, and (iv) all such blocks, after the proposed change, remain within the parameters specified in Section 3(a) above. As part of the Program Time, IFE shall provide to CBN free promotional spots weekly as follows: twenty (20) spots per week, including one (1) spot each weekday (Monday through Friday) in prime time. CBN shall notify IFE promptly after it determines that it does not intend to use any of the Program Time. If CBN has not supplied CBN programming to IFE prior to the commencement of any block of Program Time, IFE may use such block for any purpose, without liability or obligation to CBN, but IFE shall not have the right to terminate or suspend this Agreement on account thereof. 4. Fee. In consideration of the provision of the Program Time and other --- services hereunder, if any, by IFE, CBN shall pay to IFE a monthly fee ("Monthly Fee") equal to the bona fide direct costs of IFE in providing to CBN the Program Time hereunder, provided, however, the current estimate of such direct costs for the current year is $332,613. IFE shall submit to CBN an itemized bill detailing all such direct costs and the amount of the Monthly Fee for each month on or before the fifteenth (15th) day of the immediately following month. The Monthly Fee shall be due and payable within thirty (30) days immediately following the submission to CBN of said 6 bill. Throughout the term of the Agreement, IFE shall give CBN reasonable access to all records pertinent to verifying the direct costs comprising the Monthly Fee. 5. Term. ---- (a) Unless sooner terminated pursuant to Section 5(b) or 5(c) hereof, the term of this Agreement shall be fifteen (15) years, commencing on the date hereof, and, at the end of the initial fifteen (15) year term and each subsequent term thereafter, this Agreement shall be renewed automatically for additional terms of five years each upon the same terms and conditions, unless a party gives to the other party written notice of its intent not to renew this Agreement at least thirty (30) days immediately prior to the expiration of the then existing term of this Agreement, whereupon this Agreement shall expire and not be renewed at the end of the term in which such notice is given. Notwithstanding any other provisions of this Agreement to the contrary, or any provision of law, rule or equity, so long as CBN (or any successor, subsidiary, controlled affiliate or related organization) holds any capital stock or convertible debt instrument of IFE, this Agreement shall not be terminable by IFE. For purposes of this Section 5(a), the term "related organization" shall mean CBN University or any corporation or partnership a majority of whose directors or general partners, respectively, are, at the time of the execution of this Agreement, directors or officers of CBN or subject to the control and approval of any officers, directors or employees of CBN. (b) IFE may terminate this Agreement (i) upon thirty (30) days' written notice to CBN if CBN breaches or violates, in any material respect, any express representation, warranty, covenant or agreement contained in this Agreement and such breach or violation is not cured within the thirty-day period provided herein or (ii) upon not less than six (6) months' notice if IFE intends to cease transmitting any and all cable programming and if there is no successor or 7 assign of IFE who will continue to transmit such programming. Notwithstanding the foregoing, if IFE ceases to transmit The Family Channel but continues to provide other cable programming services, CBN may elect to have the CBN Programming carried on any such cable programming service. (c) CBN may terminate this Agreement at any time, upon written notice to IFE, if none of the programming services offered by IFE (or its successors or permitted assigns) consists of Family Channel programming. 6. Telethon. The Program Time shall include a continuous twelve (12) -------- hour block of program time for CBN telethon programming on a Sunday in January of each year, which Sunday and commencement time of said block shall be specified by CBN by the giving of ninety (90) days prior written notice to IFE by CBN. Telethon time may be used for fund-raising and other activities permitted under this Agreement. 7. Transmission of CBN Programming. CBN hereby grants IFE the right and ------------------------------- license to exhibit and distribute, and the right to sublicense others to exhibit and distribute, only as a part of the Family Channel, the CBN Programming and the telethons referred to in Section 6, and CBN shall make the CBN Programming and such telethons available to IFE for transmission and distribution by IFE and its sublicensees. 8. Assignment. Except as permitted by this Agreement, neither CBN nor ---------- IFE shall assign this Agreement, in whole or in part, or any of its respective rights or obligations hereunder to any other person or entity without the prior written consent of the other, which consent shall not be unreasonably withheld, and any such attempted assignment shall be void and of no effect; provided, --------- however, that IFE may assign this Agreement without CBN's consent provided such - ------- assignment is in connection with the assignment and sale of all or substantially all assets of IFE 8 used in connection with the business of providing The Family Channel programming, and the transferee has agreed with CBN in writing to honor and be bound by all the terms and conditions hereof. The time reserved for CBN under this Agreement shall be assignable, in whole or in part: (a) to any successor, subsidiary, controlled affiliate, or related organization of CBN (including, without limitation, CBN University), and (b) for preemptions by third parties, not more than ten (10) times per year in prime time, provided that in either such case the replacement programming shall be consistent with the CBN Programming and the Family Channel's other programming. Any contract for the sale by IFE (or its successors or permitted assigns) of The Family Channel or substantially all of the assets of IFE used in connection with the business of providing the Family Channel programming, shall require, as an express condition of the consummation of such sale, the purchaser's assumption of this Agreement. 9. Indemnification. Except as to music performance rights, CBN agrees to --------------- indemnify and hold and save IFE harmless for, from and against any and all claims, damages, liabilities and expenses arising out of the distribution, pursuant to this Agreement, of the CBN Programming or any programming referred to in Section 6. CBN warrants that the performing rights in the music contained in the CBN Programming and the programming referred to in Section 6 are either: (1) controlled by a performing rights society having jurisdiction, or (2) in the public domain, or (3) controlled by CBN to the extent necessary to permit IFE's use hereunder. Notwithstanding the foregoing, no warranty is made by CBN that IFE may perform the music contained in the CBN Programming without the payment of music performance royalties or otherwise making other satisfactory arrangements with the rights holders. CBN shall, at its sole expense throughout the term of this agreement, maintain in force a liability insurance policy with an insurance company reasonably acceptable to IFE or shall maintain self- insurance reserves. Said policy shall provide 9 libel and slander coverage in an amount not less than ONE MILLION DOLLARS ($1,000,000.00). Any failure by CBN to maintain said liability insurance coverage or self-insurance reserves shall not constitute a breach of this Agreement, and shall not give rise to any right of termination on the part of IFE; provided, however, if CBN fails, at any time, to maintain said liability -------- -------- insurance coverage or self-insurance reserves, IFE may suspend its performance of this Agreement until a liability insurance policy or self-insurance reserves meeting the requirements of this Section 9 is in place. 10. Notices. All notices and communications hereunder or with respect ------- hereto shall be deemed to have been duly given when actually delivered to the addressee or when mailed via first class certified United States mail, postage prepaid, addressed as follows: If to CBN, to: Harry L. Turner, II Vice President The Christian Broadcasting Network, Inc. CBN Center 1000 Centerville Turnpike Virginia Beach, VA 23463 With a copy (which shall not constitute notice) to: Grover C. Cooper, Esq. Fisher, Wayland, Cooper and Leader 1255 23rd Street, N.W. Suite 800 Washington, D.C. 20037 If to IFE, to: Mr. Timothy B. Robertson International Family Entertainment, Inc. 1000 Centerville Turnpike Virginia Beach, VA 23463 With copies (which shall not constitute notice) to: 10 Stuart A. Sheldon, Esq. Dow, Lohnes & Albertson 1255 23rd Street, N.W. Suite 500 Washington, D.C. 20037 Louis A. Isakoff, Esq. International Family Entertainment, Inc. 1000 Centerville Turnpike Virginia Beach, VA 23463 TCI Development Corporation 4643 S. Ulster Street Suite 600 Denver, Colorado 80237 Attention: Legal Department Provided, however, that if either party hereto has designated a different address for itself by written notice to the other party pursuant to this Section 10, then to the last address so designated. 11. Remedies. In the event of breach or threatened breach by either party -------- hereto of this Agreement, the other party shall be entitled, in addition to any other remedies provided for in this Section 11, to obtain all available equitable relief, including but not limited to injunctive relief and specific performance. Notwithstanding any contrary provision of this Agreement or applicable law, CBN agrees that IFE shall not be liable, responsible or accountable in damages or otherwise to CBN for any claim, demand, loss, damage, liability or expense incurred by CBN arising out of, resulting from or relating to any actual or alleged act, error or omission of IFE which does not constitute negligence of, or willful misconduct by, IFE, and in no event shall IFE's liability hereunder exceed (i) in the case of any interruption, delay, error or defect in providing any Program Time not the fault of CBN, the obligation to provide substitute Program Time at such time as IFE and CBN reasonably agree or (ii) in any other case, the fees actually received by IFE pursuant to Section 4 hereof. IFE shall not in any event be liable for (i) any failure of performance hereunder due to causes beyond its control including, but not limited to, any and all 11 acts of God, strikes, lock-outs, other industrial labor or commercial disturbances, acts of the public enemy, laws, rules and regulations of governmental entities, wars or warlike action (whether actual, impending, or expected and whether de jure or de facto), arrest or other restraint of -- ---- -- ------ governmental entities (civil or military), blockades, insurrections, riots, epidemics, landslides, sinkholes, lightning, earthquakes, hurricanes, storms, floods, washouts, fire or other casualty, civil disturbances, explosions, breakage or accidents to equipment, confiscation or seizure by any government or public authority, nuclear reaction or radiation, radioactive contamination, accidents, repairs, or any other causes, whether of the kind herein enumerated or otherwise, that are not reasonably within the control of IFE; (ii) any act or omission of any other person furnishing facilities or equipment used in providing the Program Time or any failure of any such facilities or equipment; or (iii) any act or omission of CBN or any of its officers, directors, employees or agents; provided, however, IFE shall promptly use reasonable efforts to -------- ------- restore performance. 12. Headings. The headings in this Agreement are inserted for convenience -------- only and shall not be deemed to constitute a part of this Agreement. 13. Waiver. The waiver by either party hereto of any matter provided for ------ herein shall be in writing and shall not be deemed to be a waiver of any other such matter. 14. Attorneys' Fees. In the event of commencement of suit by either party --------------- hereto to enforce the provisions of this Agreement, the prevailing party shall be entitled to receive attorneys' fees and costs as the court in which such suit is adjudicated may determine reasonable in addition to all other relief granted. 15. Severability. In the event that any term or provision of this ------------ Agreement is determined to be void, unenforceable, or contrary to law, the remainder of this Agreement shall 12 continue in full force and effect, but the parties shall negotiate in good faith a substitute term or provision which, to the extent permitted by law, will result in the benefits and costs to the parties being substantially equivalent to those intended hereunder. 16. Counterparts. More than one counterpart of this Agreement may be ------------ executed by the parties hereto and each fully executed counterpart shall be deemed an original. 17. Miscellaneous. This Agreement shall be binding upon and inure only to ------------- the benefit of and be enforceable against the parties hereto and their respective successors and assigns, sets forth the entire understanding of the parties hereto with respect to the subject matter hereof, and may be amended only by an instrument in writing executed by all parties hereto. 18. Governing Law. This Agreement shall be construed in accordance with ------------- and be governed by the laws of the Commonwealth of Virginia. Venue and jurisdiction on any lawsuit under this Agreement shall be held in the Commonwealth of Virginia. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the later date written below. THE CHRISTIAN BROADCASTING INTERNATIONAL FAMILY NETWORK, INC. ENTERTAINMENT, INC. By: /s/ Harry L. Turner, II By: /s/ Timothy B. Robertson ------------------------ ------------------------ Name: Harry L. Turner, II Name: Timothy B. Robertson ------------------- -------------------- Title: Vice Pres. Title: Pres. ------------------ --------------- Dated: January 5, 1990 Dated: January 5, 1990 ------------------ ----------------- 13 Amendment No. 1 to Program Time Agreement THIS AMENDMENT NO. 1 to Program Time Agreement ("the Amendment") is entered into this 11th day of June, 1997, by and between The Christian Broadcasting Network, Inc. ("CBN") and International Family Entertainment, Inc. ("IFE"). WHEREAS, CBN and IFE entered into a certain Program Time Agreement dated as of January 5, 1990 with respect to the carriage by The Family Channel of certain programming produced by or on behalf of CBN (the "Program Time Agreement"); and WHEREAS, certain ambiguities have arisen with respect to the interpretation of the Program Time Agreement which CBN and IFE desire to clarify; and WHEREAS, CBN and IFE desire to amend certain provisions of the Program Time Agreement in the event that Fox Kids Worldwide, Inc. or one of its affiliates ("FKW") acquires a certain percentage of the voting securities of IFE; and WHEREAS, terms not defined in this Amendment shall have the meanings given to them in the Program Time Agreement; NOW, THEREFORE, in consideration of the mutual promises herein contained and for other good and valuable consideration, the receipt and sufficiency of which is acknowledged, the parties hereto agree as follows: 1. Commitment to Deliver Programming. Paragraph 1 to the Program Time --------------------------------- Agreement is amended by the addition of the following language at the end of the Paragraph: "Notwithstanding any other provision herein to the contrary, for a period of five (5) years from the Effective Date, CBN will deliver to IFE for telecast on The Family Channel episodes of the television programming currently entitled The 700 Club with Pat Robertson or a similar content program hosted by Pat - ------------------------------- Robertson ("The 700 Club"), subject to Pat Robertson's availability and ------------ agreement, provided that if Pat Robertson is not available a suitable replacement host will be provided. The 700 Club shall be the same program as ------------ otherwise generally distributed by CBN to broadcast stations in the United States. The 700 Club shall be of substantially the same general content and ------------ quality as currently delivered, and shall be at least one hour in duration (with CBN retaining the right to program the Morning Block with either an additional half hour of The 700 Club or another program complying with the program ------------ standards set forth in Paragraph 1 to the Agreement), and which program shall have a repeat schedule no more frequently than the second highest number of repeats during the period 1990 through 1996. 14 In addition, during this five (5) year period, CBN shall not authorize or permit the telecast of The 700 Club, or a program with similar general content, on any ------------ cable channel in the United States other than: (i) Trinity Broadcasting Network ("TBN"), KWGN, WPCB ("Cornerstone Network"), FAMNET and World Harvest Television ("LeSea") (herein the "Other Outlets"); (ii) any other Religious Channel delivered to less than 20 million homes; and (iii) The Family Channel; provided that The Family Channel is delivered at least to 55 million homes according to A.C. Nielsen. For purposes hereof, a Religious Channel shall be defined as a cable channel that has a program content that is at least seventy-five percent (75%) religious in nature on average across all day parts in which it telecasts. Nothing in this Paragraph shall preclude CBN from distributing The 700 Club ------------ through free-to-air broadcast syndication (regardless of whether such stations are carried on cable systems as local or distant signals), to satellite only channels (i.e., a channel that is not simultaneously delivered to cable subscribers), through the Other Outlets, to a Religious Channel delivered to less than 20 million homes, or by any non-cable distribution arrangements, or shall preclude CBN from distributing programming similar to The 700 Club on a ------------ one airing per week basis. 2. CBN's Right to Renew. Paragraph 5(a) is amended by the deletion thereof, -------------------- ----------------- and the substitution therefor of the following: - ---------------------------------------------- "(a) Unless sooner terminated pursuant to Section 5(b) or 5(c ) hereof, the term of this Agreement shall be fifteen (15) years, commencing on the date hereof, and, at the end of the initial fifteen (15) year term and each subsequent term thereafter, this Agreement shall be renewed automatically for additional terms of five (5) years each upon the same terms and conditions, unless CBN gives to IFE written notice of its intent not to renew this Agreement at least thirty (30) days immediately prior to the expiration of the then existing term of this Agreement, whereupon this Agreement shall expire and not be renewed at the end of the term in which such notice is given. Notwithstanding any other provisions of this Agreement to the contrary, or any provision of law, rule or equity, this Agreement shall not be terminable or non- renewable by IFE, and the Agreement, as such may be amended from time to time, shall inure to the benefit of and be binding upon the parties hereto and their respective successors and permitted assigns and all successors in interest --------- however occurring, whether by sale, merger, reorganization or otherwise." 3. Coordination of Telethon Schedule. Paragraph 6 to the Program Time --------------------------------- Agreement is amended by the addition of the following language at the end of the Paragraph: "CBN shall confer in good faith with IFE to schedule the January Telethon, with CBN's decision to be final." 4. Preemption. Paragraph 8 to the Program Time Agreement is amended by the ---------- deletion of the following language beginning in line 10 on page 8: 15 ", and (b) for preemptions by third parties, not more than ten (10) times per year in prime time provided that in either such case the replacement programming shall be consistent with the CBN Programming and the Family Channel's other programming." and in lieu thereof, the following language shall be substituted: ", and (b) IFE shall have the right to preempt the telecasts of the CBN Programming during the Prime Block up to five (5) times per year in its sole discretion, provided that (i) IFE gives CBN at least 30 days prior notice of the preemptions when and where practicable, (ii) no preemptions may occur during the two weeks of the January Telethon, one week of the May Telethon, one week of the Telethon in September or October, nor on Good Friday, Easter Day, Fourth of ---------- July, Thanksgiving Day, Christmas Eve, or Christmas Day, (iii) CBN shall receive a credit for a pro rata portion of the Monthly Fee based on the ratio that the preempted time bears to all the Program Time during the month of the preemption, (iv) no preemption shall be used for programming involving lobbying, political parties or candidates for office, or for paid political broadcasts or announcements, and (v) IFE shall be entitled to retain all revenue generated during the preempted time. The programming telecast by any successor or -- permitted assignee of CBN as provided in part (a), above, shall be consistent - ------------------ with the CBN Programming and The Family Channel programming and the programming telecast by IFE during preemptions as provided in part (b), above, shall be consistent with The Family Channel's other programming." 5. Preemption During Daytime. A new Paragraph 19 is added to the Program Time ------------------------- Agreement, and shall read as follows: "19. Additional Time During January Telethon. CBN shall have the right to --------------------------------------- preempt The Family Channel programming in the 11:30 am to 12 noon time slot for two weeks, Monday through Friday, during CBN's January Telethon, and for one week Monday through Friday during CBN's May Telethon, solely for the purpose of extending the telecasts of The 700 Club. CBN shall not be required to pay for ------------ such preemptions, and shall be entitled to retain all revenue generated thereby, provided that IFE may at its discretion preempt the CBN Programming for fifteen (15) half hours (which may be in any increments of one to three contiguous half hours) each year during the Morning Block, so long as such preemptions do not occur during the two week January, one week May or one week fall Telethon, nor on Easter Day, Good Friday, Fourth of July, Thanksgiving Day, Christmas Eve or Christmas Day, and provided IFE gives CBN thirty (30) days advance notice of such preemption. IFE preemptions shall not be used for programming involving lobbying, political parties or candidates for office, or for paid political broadcasts or announcements, nor shall more than three preemptions take place per week. IFE shall be entitled to retain all revenue generated during its preemption of the CBN Programming." 6. Effective Date. This Amendment shall become effective on the first to -------------- occur of (x) Closing under that certain Stock Purchase Agreement dated of even date herewith between Fox Kids Worldwide, Inc., a Delaware corporation ("FKW") and CBN, (y) the purchase by FKW of all shares of IFE Class B stock owned by CBN, and (z) the closing of that certain Agreement and Agreement and Plan of Merger dated of even date herewith among FKW, IFE and Fox Kids Merger Corporation. If not effective prior to the expiration or termination of the Merger Agreement according to its terms, this Amendment shall terminate. 16 7. Representations and Warranties. Each party represents and warrants to the ------------------------------ other that the Program Time Agreement is in full force and effect and that such party has no knowledge of any breach by the parties thereto. Each party further represents and warrants to the other party that it has obtained all consents and approvals necessary to enter into this Amendment, including all necessary Board of Director's approvals, that this Amendment is the binding obligation of the parties and that it is enforceable according to its terms. 8. Ratification and Miscellaneous. Except as expressly amended hereby, the ------------------------------ Program Time Agreement shall remain in full force and effect according to its terms, and as amended hereby, shall inure to the benefit of CBN and be binding upon CBN and its successors and permitted assigns, and binding upon IFE and all its successors in interest, however occurring, whether by sale, merger, reorganization or otherwise. The term "Agreement" as used herein and in the Program Time Agreement shall henceforth mean the Program Time Agreement, as amended hereby. IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of the day and year first above written. The Christian Broadcasting International Family Network, Inc. Entertainment, Inc. by: /s/ Michael D. Little by: /s/ Timothy Robertson ---------------------- ----------------------- title: President title: CEO -------------------- ---------------------- 17 EX-10.52 10 FAMILY CHANNEL AFFILIATION AGREEMENT Portions of this exhibit have been deleted and filed separately with the Securities and Exchange Commission pursuant to a request for confidential treatment. The redacted portions are identified by brackets with the character "*" indicating deleted information. [*] CONFIDENTIAL TREATMENT REQUESTED EXHIBIT 10.52 INTERNATIONAL FAMILY ENTERTAINMENT, INC. FAMILY CHANNEL AFFILIATION AGREEMENT THIS AGREEMENT, dated as of December 28, 1989 is by and between The Family Channel, a division of International Family Entertainment, Inc., a Delaware corporation, ("FAM"), and SATELLITE SERVICES, INC., a Delaware corporation ("Affiliate"), 4643 South Ulster Street, Suite 600, Denver, Colorado 80237. FOR AND IN CONSIDERATION of the mutual covenants and conditions hereinafter set forth, the parties agree as follows: 1. SUPERSESSION ------------ This Agreement supersedes the CBN CABLE NETWORK, Affiliation Agreement dated as of January 1, 1987, which Agreement is terminated this date. 2. DEFINITIONS. ------------ As used in this Agreement, the following terms shall have the respective meanings indicated below: (a) Systems: Cable television systems listed on the attached Schedule I, ------- as Affiliate may add to or delete from pursuant to the terms of this Agreement, [*]. Each of the Systems presently listed on Schedule I satisfies and any System added thereto, will satisfy the control or interest criteria contained in Exhibit A. (b) Affiliate's Subscribers: Any person or entity to whom, at the time in ----------------------- question, any System provides television service; provided that with respect to -------- any multiple dwelling unit building or clustered living facility which has a monthly bulk billing rate, the number of Subscribers each month shall be calculated by dividing such monthly bulk billing rate by the rate for Basic Service (as hereinafter defined) in the applicable System; [*] [*] CONFIDENTIAL TREATMENT REQUESTED (c) Basic Service: The television service package which is received by all ------------- of Affiliate's Subscribers to the Systems in question and may be purchased by any such Subscriber without additional obligation to purchase any other service package. (d) Expanded Basic Service: A television service package, excluding any ---------------------- subscription or other premium pay service, for which a charge is imposed in addition to or in excess of the charge for Basic Service, and which is received by the second greatest number of Affiliate's Subscribers. (e) FAM Service: Positive value family programming typically including but ----------- not limited to westerns, game shows, movies, inspirational programs and specials, comedies, newscasts and news specials, sports series and specials, original programming, documentaries and talk shows, as exemplified by the program schedule for the month of December, 1989, attached hereto as Exhibit B. (f) Territory: Any area served by the Affiliate's Cable Television --------- Systems, and as to Non-Cable Distribution Systems, any non-franchised areas within the counties served by the Systems or any non-franchised areas in counties adjacent thereto. (g) Marks: The service marks, trademarks, trade names and logos to the ----- extent they are expressly being licensed herein for use in connection with the distribution, promotion, marketing and sales of the FAM Service, or any other service mark, trademark, trade name or log used by FAM from time to time in connection with the FAM Service and furnished by FAM to Affiliate in facsimile form. 3. GRANT OF RIGHTS. --------------- (a) FAM hereby grants to Affiliate, and Affiliate hereby accepts, the non- exclusive right to exhibit and distribute the FAM Service over the Systems for reception by each such System's customers, in its Territory as defined in Paragraph 1(f). [*] 2 [*] CONFIDENTIAL TREATMENT REQUESTED Affiliate agrees to make available the FAM service on Systems, 24 hours per day, 7 days per week, during the term hereof, except for those Systems which did not carry the FAM Service full-time on the date hereof provided, Affiliate shall use reasonable efforts to change the FAM Service to a full-time basis on any such System which is not full-time on the date hereof. Each System carrying the FAM Service shall be listed in Schedule 1 attached hereto. Affiliate shall give thirty (30) days written notice to FAM of its addition of any such System. Subject to the thirty (30) days notice requirement, upon certification by an authorized officer of Affiliate that a System meets the criteria set forth in Exhibit A, said System shall be automatically included in this Agreement. The terms of any and all agreements between FAM and such System which meets the criteria set forth in Exhibit A shall become null and void and of no further effect, effective upon the date such System is added to this Agreement. Affiliate may at any time or from time to time delete Systems from this Agreement and may amend Schedule 1 from time to time to reflect the addition or deletion of Systems, provided it gives FAM a minimum of ninety (90) days prior written notice of such deletion and upon the request of FAM an opportunity to meet with representatives of Affiliate. Notwithstanding the foregoing, [*] 3 [*] CONFIDENTIAL TREATMENT REQUESTED (b) FAM hereby grants to Affiliate a non-exclusive license to use the marks solely in connection with the distribution, promotion, marketing and sale of the FAM Service. 4. TERM. ---- (a) The term of this Agreement shall be for approximately eleven (11) years and four (4) months commencing as of the date of Closing under the Subscription Agreement defined in Paragraph 17(i) hereof, and ending on May 1, 2001, but shall be automatically reviewed for successive one (1) year terms unless either party gives the other party written notice of cancellation, as follows. The notice shall be given no less than one year prior to the end of the initial term and no less than ninety (90) days prior to the end of any renewal term, [*] In event of expiration of the original or any renewal term, if no new 4 [*] CONFIDENTIAL TREATMENT REQUESTED agreement has been reached, either FAM or Affiliate may discontinue the delivery of the FAM Service to Affiliate upon three hundred sixty-five (365) days prior written notice. 5. TRANSMISSION BY FAM AND DISTRIBUTION BY AFFILIATE OF THE FAM SERVICE. -------------------------------------------------------------------- (a) FAM shall arrange and pay at its expense for transmission of the FAM Service to each System by means of a domestic primary cable communications satellite. Affiliate shall, at its own expense, obtain and install one or more earth stations and/or any other equipment necessary to receive and distribute the FAM Service throughout each System. Affiliate shall, at its own expense, obtain and install one or more earth stations and/or any other equipment necessary to receive and distribute the FAM Service throughout each System. Affiliate shall receive the FAM Service at each earth station (or such other receiving equipment which may be utilized by Affiliate) and, except as otherwise expressly provided herein, shall distribute the Programming transmitted by FAM to and throughout each such System exactly as transmitted by FAM, without delay, addition, deletion, alteration, editing or any amendment thereof. (b) The FAM Service shall be included in Basic Service on each of the Systems receiving the FAM Service, [*] (c) The FAM Service is presently delivered on Galaxy I, Transponder 11, and Satcom F1-R. FAM also contemplates delivering the FAM Service on GE Americom's C-3 and C-4 satellites, when available. Affiliate shall receive and distribute The FAM Service designated the e "East Coast Feed" in all systems in the Eastern, Central and Mountain Time Zones, and the "West Coast Feed" for systems in the Pacific Time Zone. Those Systems located in the Pacific Time Zone may carry the East Coast Feed of the FAM Service if they do not have or cannot install the equipment necessary to 5 receive the West Coast Feed, provided FAM shall have the option to make available to such Affiliates the necessary equipment, in which event such Affiliate shall thereafter carry the West Coast Feed. Notwithstanding the foregoing, in the event cable operators representing eighty-five percent (85%) or more of the subscribers in any DMA located in the Mountain or Pacific Time Zones desire to carry a Feed other than as provided in the previous two sentences, they may carry such other Feed. FAM acknowledges that Affiliate is not responsible for monitoring compliance with respect to which Feed a System is carrying and FAM will notify Affiliate if any System is not complying with the foregoing three sentences and such non-compliance shall not be considered a breach of this Agreement. FAM reserves the right to change the satellite or transponder carrying the FAM signal upon notification to Affiliate, except in case of force majeure, at least ninety (90) days prior to such change; provided, -------- however, that such satellite or transponder must be commonly used in the cable - ------- television industry. In the event a System is not capable of receiving such satellite without incurring material additional cost, this Agreement shall no longer apply to such System (including the guarantee in Paragraph 3(a)). Such notice of change of satellite or transponder shall also contain a temporary suspension of the distribution provisions in this Agreement for such minimum reasonable time as is necessary for Affiliate to accomplish the reorientation of earth stations and Affiliate to accomplish the reorientation of earth stations and other equipment necessary to receive the FAM Service signal. Anything in this Agreement to the contrary notwithstanding, FAM shall not be liable to Affiliate, any Subscriber of Affiliate, or any third party, as a result of such temporary suspension. (d) FAM shall credit Affiliate for any temporary suspension or for any continuous interruption of service of twenty-four (24) hours or longer; such interruption being measured from the time Affiliate notifies FAM of the interruption or from the time a major outage is known to FAM. Credit is given to Affiliate on that portion of the service which is affected by the interruption in an amount equal to the proportionate part of the Service Fee in twenty-four (24) hour multiples for each twenty-four (24) hour outage or interruption. No credit will be allowed for any interruption caused by negligence of Affiliate or the Systems. (e) FAM and Affiliate shall each use their respective reasonable efforts to maintain for the FAM Service a high quality of signal transmission, reception and delivery. (f) Affiliate shall insure that each Cable Television System shall acquire, install and maintain equipment capable of descrambling the satellite signal of the FAM Service (which equipment shall be compatible with that acquired to descramble other basic cable services) for uninterrupted service. (g) Affiliate will use reasonable precautionary efforts to prevent unauthorized reception and use of the FAM Service, and will 6 [*] CONFIDENTIAL TREATMENT REQUESTED use reasonable efforts to notify FAM as soon as possible of any unauthorized use or copying of the FAM Service of which it has knowledge, and further will cooperate fully with FAM in any legal proceeding commenced by FAM in connection therewith (but Affiliate shall not be required to incur any legal or other expense unless it so elects). The foregoing shall not be deemed to prohibit home taping by Affiliate's subscribers for their private use. Further, FAM acknowledges that Affiliate may undertake as part of its business the connection of Affiliate's Subscribers' videotape recorders, VCRs or other devices intended for the duplication of video programming for home viewing; and the provisions of this Agreement shall not restrict nor contemplate the restriction of Affiliate, nor shall Affiliate be restricted, in regard to said undertaking. (h) FAM agrees that signal distribution beyond traditional television video and audio (including stereo), including, but not limited to the use of the Vertical Blanking Interval ("VBI"), is not essential to, nor a part of, the transmission of the FAM Service, and thus, all rights in and to signal distribution beyond traditional television video and audio (including stereo), including but not limited to the use of VBI, are retained by and reserved to Affiliate, and nothing herein shall preclude Affiliate from exercising and exploiting such rights by means and in any locations, concurrently herewith freely and without restrictions, provided that Affiliate indemnify and hold FAM harmless from all costs, liability, damages and expenses related thereto. 6. CONTENT OF THE SERVICE. ---------------------- (a) Subject to the following Paragraphs, FAM shall have the sole right and privilege to determine the format of and the programming to be included in the FAM Service and any and all changes in such format and in the selection, scheduling, substitution and withdrawal of any programs therein or therefrom shall be at the sole discretion of FAM. (b) The FAM Service shall center on positive value family programming typically including but not limited to westerns, game shows, movies, inspirational programs and specials, comedies, newscasts and news specials, sports series and specials, original programming, documentaries and talk shows. FAM shall generally endeavor to include in the FAM Service programming similar in nature, quality and quantity to the programming outlined in the attached program schedule (Exhibit B). [*] 7 [*] CONFIDENTIAL TREATMENT REQUESTED [*] 7. SERVICE FEES. ------------ (a) Affiliate shall quarterly pay to FAM at P.O. Box 1155, Norfolk, Virginia 23501 monthly service fees calculated and scheduled as follows: (i) For each Affiliate Subscriber to the FAM Service, Affiliate shall pay a Service Fee in an amount equal to [*] 8 [*] CONFIDENTIAL TREATMENT REQUESTED (b) Affiliate shall pay to FAM monthly Subscriber Fees (as set forth above) for each of Affiliate's Subscribers to the FAM Service within [*]. No adjustment shall be made for part-time carriage, even if such carriage is permitted by FAM. (c) If in any audit period Affiliate pays FAM an amount more than [*] less than the amount required under the provisions of this Agreement, Affiliate shall be liable to FAM for FAM's reasonable costs in determining and collecting the additional payment due, including, without limitation, reasonable counsel fees and including the costs of any inspection or audit pursuant to this Agreement. (d) [*] 9 [*] CONFIDENTIAL TREATMENT REQUESTED For purposes of calculating the number of Subscribers in the first month, the number of Subscribers, shall be prorated as follows: Subscribers x number of days Service is carried in month ------------------------------------------ total number of days in month (e) If Affiliate fails to make any [*] when due. Affiliate shall also be liable for a late payment charge equal to [*] (or, if less, the maximum lawful rate of interest) per month thereon, such charge to be prorated for any delinquency period of less than one month. (f) [*] (g) [*] 8. REPORTS AND RECORDS. ------------------- (a) [*] (b) Within 105 days following the end of each of Affiliate's fiscal years during any portion of which this Agreement is in effect, Affiliate shall deliver to FAM a letter addressed to FAM 10 [*] CONFIDENTIAL TREATMENT REQUESTED signed by an executive officer of Affiliate certifying as to the completeness and accuracy of the statements delivered by Affiliate with respect to the number of Affiliate's Subscribers in such fiscal year, and such other information as FAM may reasonably request. Affiliate's obligation to supply such letters shall continue after the termination of this Agreement until FAM receives full payment of all amounts due and owing. (c) Affiliate shall keep accurate and complete records and accounts of billings, subscribers and all other matters which pertain to Affiliate's FAM Subscribers. Upon not less than five (5) business days prior notice to Affiliate, all such records and accounts shall be available for inspection, audit and photocopying by FAM or its representatives, during normal business hours at any time during the term of this Agreement and for one (1) year thereafter, but not more than twice during any 365 day period. Prior to such audit, FAM, or its agent, shall execute a non-disclosure agreement with respect to Affiliate's books and records in a form reasonably satisfactory to Affiliate and FAM. Neither FAM's acceptance of any information or payment nor FAM's inspection or audit of Affiliate's records or accounts will prevent FAM from later disputing the accuracy or completeness of any payment made or information supplied by Affiliate, provided, however, that FAM may not examine books and records except with respect to payments due in the then current or previous calendar year, nor dispute payment by Affiliate for any time prior to such period, except that FAM may dispute any issue raised during such period beyond the expiration of the audit period. 9. COMMERCIAL AVAILABILITIES. ------------------------- (a) FAM shall make available to Affiliate not less than [*] each day or an average of [*] in every hour for commercial availabilities for Affiliate's cablecast over Affiliate's Systems, to be used at Affiliate's option and control. The schedule of such commercial availabilities shall be supplied by FAM in a timely manner. Commercial availabilities shall be one or two minutes in length, and shall be substantially comparable to the Schedule attached as Exhibit D hereto. (b) Affiliate shall comply with the following standards: Commercials shall be consistent with FAM's role in providing wholesome family-oriented programming and upholding traditional Judeo-Christian values. Specifically prohibited is advertising or programming that promotes or contains desirable connotations in reference to alcohol, tobacco products, narcotics, gambling, contraceptives, sexual promiscuity, the occult, astrology, horoscopes, feminine hygiene products of a personal nature and "X" rated movies. In the event of 11 repeated violations of this provision by a System, Affiliate will take reasonable steps to prevent any continued violation by such System. (c) FAM reserves the right to occasionally alter Affiliate's schedule or to preempt Affiliate's commercial availabilities, without liability to Affiliate, for FAM programming, or to provide coverage of an event of public interest or importance, in which event FAM shall provide equally valuable good time to Affiliate as soon as practicable. 10. PROMOTION AND RESEARCH. ---------------------- (a) Affiliate shall use reasonable efforts, in accordance with this Agreement, to promote an awareness of the FAM Service among Affiliate's Subscribers and potential subscribers. FAM shall provide promotional and marketing advice and information and shall make available to Affiliate, from time to time, such sales and promotional materials (including, but not limited to, print and video materials) for purposes of marketing and promotion of the FAM Service, as FAM and Affiliate may mutually deem appropriate. (b) Affiliate has the non-exclusive right to package, price (to the subscriber) and market the FAM Service to any potential or actual Affiliate's SMATV Subscribers within the Territory, provided the FAM Service shall not be packaged with any service featuring "X" rated films, or any other material deemed offensive to FAM unless FAM is also offered without such packaging. (c) FAM may, from time to time, undertake marketing tests and surveys, rating polls and other research in connection with the FAM Service. Affiliate shall have the right to approve any tests, surveys or other research which apply specifically to the Systems, and shall cooperate with FAM in such approved research by providing FAM with information which FAM reasonably requests. FAM shall provide Affiliate with the results of such research to the extent it applies to the Cable Television Systems. (d) Affiliate agrees that unless notified to the contrary by FAM, in all trade references, advertising, promotion and for all other purposes, FAM shall be referred to exclusively as "The Family Channel." (e) Affiliate acknowledges that the names and Marks of and all rights and title in the programming and all Marks, materials, format s and concepts relating to FAM shall belong to FAM, and Affiliate has not and will not acquire any property of FAM and that Affiliate has not and will not acquire any proprietary or other rights or interests therein by reason of this Agreement. 11. REPRESENTATIONS AND WARRANTIES. ------------------------------ 12 [*] CONFIDENTIAL TREATMENT REQUESTED (a) FAM represents and warrants to Affiliate that (i) The Family Channel is a division of International Family Entertainment, Inc., a corporation duly organized and validly existing under the laws of the State of Delaware; (ii) FAM has the corporate power and authority to enter into this Agreement and to fully perform its obligations hereunder; and (iii) FAM is under no contractual or other legal obligation which shall in any way interfere with its full, prompt and complete performance hereunder. (b) Affiliate represents and warrants to FAM that (i) Affiliate is a corporation duly organized and validly existing under the laws of the State of Delaware; (ii) Affiliate has the corporate power and authority to enter into this Agreement and to fully perform its obligations hereunder; (iii) Affiliate is under no contractual or other legal obligation which shall in any way interfere with its full, prompt and complete performance hereunder; and (iv) Affiliate is authorized to act on behalf of each Cable Television System. 12. [*] 13. INDEMNITY AND DISCLAIMERS. ------------------------- (a) Affiliate and FAM shall each indemnify and forever hold harmless the other, the other's affiliate companies and their respective officers, directors, employees and agents from all liabilities, claims, costs, damages and expenses (including, without limitation, reasonable counsel fees) arising out of any breach of any representation contained in or any of its obligations pursuant to this Agreement. (b) FAM will indemnify Affiliate from and against any and all claims, liabilities, costs and expenses arising out of the distribution, pursuant to this Agreement, of the FAM Service to the extent that such claims, damages, liabilities, costs and expenses are: (i) based upon alleged libel, slander, defamation, 13 invasion of the right of privacy, or violation or infringement of copyright or literary or dramatic rights arising out of the content of the FAM Service (except for alleged violation of music performance rights as covered below); (ii) based upon the distribution of programs as furnished by FAM without any deletions by Affiliate except as required by FAM; and (iii) not based upon any material added by Affiliate to such programs (as to which deletions and added material Affiliate shall, to the like extent, indemnify FAM, all network advertisers, if any, on such programs, and the advertising agencies of such advertisers). The foregoing notwithstanding, FAM shall indemnify Affiliate as to music performance rights for any alleged performance form FAM to the headend, but FAM shall not be obligated to indemnify Affiliate with regard to any claims based upon the failure to obtain any musical performance license related to the distribution of the FAM Service from headend to Subscriber, provided that FAM shall use its diligent efforts to obtain a single license fee for transmission of the FAM Service to Affiliate's Systems for distribution to Affiliate's Subscribers of copyrighted musical work. FAM makes no warranty that the music contained in its Service may be performed without a music performance license. (c) Each party shall so indemnify the other only if such other party gives the indemnifying party prompt notice of any claim or litigation to which its indemnity applies; it being agreed that the indemnifying party shall have the right to assume the defense of any or all claims or litigation to which its indemnity applies and that the indemnified party will cooperate fully with the indemnifying party in such defense and in the settlement of such claim or litigation. In the event the indemnitor elects to assume the defense of any such claim or litigation, the indemnitor's obligations with respect thereto shall be limited to holding the indemnified party harmless from and against any loss or damage or costs caused by or arising out of any judgment or any settlement approved by the indemnitor in connection with any such claim or litigation. If the indemnitor does not assume the defense of any such claim or litigation, any settlement thereof which might affect the indemnitor's rights shall be subject to the indemnitor's prior approval, which approval shall not be unreasonably withheld. (d) Except as herein provided to the contrary, neither Affiliate nor FMA shall have any rights against the other party hereto for claims by third persons or for the nonoperation of facilities or the nonfurnishing of the FAM Service if such nonoperation or nonfurnishing is due to Acts of God, inevitable accident, fire, lockout, strike or other labor dispute, riot or civil commotion, act of government or government instrumentality (whether federal, state or local), illness or incapacity of any important performer, failure in whole or in part of transmission facilities (including, but not limited to production, satellite transmissions, "uplinking," "downlinking," or other distribution) or other cause beyond such party's reasonable control. If the FAM 14 Service is not delivered as a result of any of the above-referenced causes, the Service Fees, pursuant to Paragraph 5(d), shall be suspended during such time, in the same manner as provided in Paragraph 5d, Affiliate may terminate the Agreement if the interruption exceeds ninety (90) days, provided that Affiliate shall have first used its reasonable efforts to cure such interruption if such cure is an obligation of Affiliate under another provision of this Agreement. 14. CONFIDENTIALITY. --------------- (a) Neither Affiliate nor FAM shall disclose to any third party (other than its respective employees, in their capacity as such), any information, including any press releases, with respect to the terms and provisions of this Agreement, and FAM shall not disclose any information obtained in any inspection and/or audit of Affiliate's books and records, except: (i) to the extent necessary to comply with law or the valid order of a court of competent jurisdiction, in which event the party making such disclosure shall so notify the other as promptly as practicable (and, if possible, prior to making such disclosure) and shall seek confidential treatment of such information; (ii) as part of its normal reporting or review procedure to its parent company, its auditors, appraisers, and attorneys agree to be bound by the provisions of this Section; (iii) in order to enforce its rights pursuant to this Agreement; (iv) to investment banks, and financial institutions (provided such investment bank and financial institutions agree to be bound by this confidentiality provision) and (v) if mutually agreed by Affiliate and FAM in advance in writing. (b) FAM shall comply with all provisions of the Cable Communications Policy Act of 1984 as it relates to FAM including without limitation the prohibition against disclosure to a third party of certain information regarding cable subscribers, to the extent such prohibition is a requirement of the version of the Cable Act which is then in effect. 15. TERMINATION. ----------- In the event of any material breach or default hereof by either party to this Agreement, then the non-breaching and/or non-defaulting party may terminate this Agreement upon sixty (60) days' written notice to the other party if such other party defaults in the performance of any material obligation of such other party hereunder (which default shall be specified in such notice) and such default is not cured within such sixty (60) day period. 16. NOTICE. ------ 15 All notices and communications given hereunder shall, unless otherwise specifically provided, be in writing by personal delivery to the President of Affiliate, and to the President of FAM or by certified mail, telegram, or Telex or Facsimile at the following addresses of Affiliate and FAM, unless either party at any time or times designates another address for itself by notifying the other party thereof by certified mail, in which case all notices to such party shall thereafter be given at its most recently so designated address. Notice shall be deemed given seven (7) days after mailing. If to Affiliate: Satellite Services, Inc. Regency Plaza One 4643 South Ulster Street Denver, Colorado 80237 Copy to: Legal Department If to FAM: The Family Channel P.O. Box 1155 Norfolk, VA 23501 Attn: President Copy to: Office of General Counsel The Family Channel World Outreach Support Center CBN Center Virginia Beach, VA 23463 17. GENERAL. ------- (a) Entire Agreement: This Agreement together with the Exhibits and ---------------- schedules attached hereto and incorporated by reference herein contains the entire understanding of the parties hereto relating to the subject matter hereof and can be amended, modified or terminated only by a writing signed by both parties. Any waiver must be in writing and signed by the party whose rights are being waived and no waiver by either Affiliate or FAM of any breach of any provision hereof shall be or be deemed to be a waiver of any preceding or subsequent breach of the same or any other provision of this Agreement. (b) Governing Law: The obligations of Affiliate under this Agreement are ------------- subject to all applicable federal, state and local laws, rules and regulations (including but not limited to the Cable Communications Policy Act of 1984 as amended from time to time, the Communications Act of 1934 as amended and the rules and regulations of the Federal Communications Commission) and this Agreement and all matters or issues collateral hereto shall be governed by the 16 laws of the State of Virginia applicable to contracts performed entirely therein. (c) Relationship of Parties: Neither Affiliate nor FAM shall be or hold ----------------------- itself out as the agent of the other under this Agreement. None of Affiliate's Subscribers shall be deemed to have any privity of contract or direct contractual or other relationship with FAM by virtue of this Agreement or FAM's delivery of the FAM Service to Affiliate hereunder. Nothing contained herein shall be deemed to create, and the parties do not intend to create, any relationship of partners of joint venturers as between Affiliate and FAM by virtue of this Agreement, and neither party is authorized to or shall act toward third parties or the public in any manner which would indicate any such relationships with the other. FAM disclaims any present or future right, interest or estate in or to the transmission facilities of Affiliates or the parent, subsidiaries, partnerships or joint ventures controlling the Cable Television System on which the programming signals delivered by Affiliate are transmitted, such disclaimer being to acknowledge that neither Affiliate nor the transmission facilities of the Cable Television Systems (and the owners thereof) are common carriers. FAM agrees that, except as otherwise provided herein, Affiliate has and will continue to have complete authority and power to control and to designate the channel or channels over which such programming is to be carried by Affiliate in any market in accordance with the terms of this Agreement. (d) Assignment: This Agreement including both its obligations and benefits ---------- shall pass to and be binding on the respective transferees and successors of the parties, except that neither this Agreement nor either party's rights or obligations hereunder with respect to any Cable Television System shall be assigned or transferred by either party without the prior written consent of the other party, and that in no event shall the per subscriber rates set forth in this Agreement be assignable or transferable. Notwithstanding the foregoing, no consent shall be required if either party shall assign this Agreement to any entity controlled by or affiliated with it, or which acquires substantially all of its assets. (e) Headings: The headings and captions of the sections of this Agreement -------- are for convenience only and shall not in any way affect the interpretation of this Agreement. (f) Severability: If any provision of this Agreement or the application ------------ thereof to any person or circumstance shall to any extent be held in any proceeding to be invalid or unenforceable, the remainder of this Agreement, shall not be affect thereby; provided, however, that both parties shall negotiate in good faith with respect to an equitable modification of the provisions, or applications thereof, held to be invalid. In the event that volume discounts or differentiated rates are declared null and void by 17 [*] CONFIDENTIAL TREATMENT REQUESTED legislative enactment and Affiliate is required to pay a higher effective rate as a result or if any other legislation is enacted which materially deprives Affiliate of the overall economic benefits of this Agreement, if the parties fail to reach an Agreement within 90 days after good faith negotiations with respect to an equitable modification of this Agreement, Affiliate may terminate this Agreement subject to the provisions of Paragraph 4(a). (g) All rights not specifically and expressly granted Affiliate herein are reserved by FAM. (h) [*] In the event Affiliate cancels this Agreement or terminates carriage of the FAM Service in any System, provided FAM receives ninety (90) days prior written notice of such fact [*] (i) This Agreement shall become effective upon the date of the Closing of the IFE Subscription and Shareholder Agreement dated as of December 11, 1989, by and among M.G. Robertson, Timothy B. Robertson, Christian Broadcasting Network, Inc., TCI Development Corporation, Tele-Communications, Inc. and International Family Entertainment, Inc. In the event the IFE Subscription and Shareholder Agreement does not close on or before January 31, 1990, this Agreement shall be null and void. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written. SATELLITE SERVICES, INC. THE FAMILY CHANNEL NAME /s/ John Malone BY: /s/ Timothy B. Robertson ------------------------- -------------------------- Timothy B. Robertson TITLE President President --------- 18 [*] CONFIDENTIAL TREATMENT REQUESTED EXHIBIT A TO FAMILY CHANNEL AFFILIATION AGREEMENT SYSTEM QUALIFICATIONS - --------------------- 1. Affiliate represents and warrants the following regarding each System listed in Appendix I hereof: a. that Tele-Communications, Inc. ("TCI") or a corporation, partnership, or joint venture in which TCI owns, directly or indirectly, at least a [*] equity interest, [*] or that TCI, directly or indirectly, owns a [*] equity interest in such System or has an interest in or obligation of such System under which TCI has the right to convert into or acquire at least the required interest. An "indirect" ownership is an interest resulting from ownership through any number of subsidiaries. The following are examples: (i) A System is [*] owned by a subsidiary of TCI, [*] of the outstanding capital stock of which subsidiary is owned by a wholly-owned subsidiary of TCI; or (ii) A System is [*] owned by a corporation or by a joint venture or partnership, in which a wholly-owned subsidiary of TCI owns at least [*] of the outstanding capital stock of such corporation or: if a general or limited partnership or a joint venture, a direct or indirect wholly-owned subsidiary of TCI is a partner which owns at least [*] of the outstanding partnership or joint venture interests. b. that Affiliate has been authorized, pursuant to a valid written agreement in full force and effect to make and execute decisions on behalf of each such System with respect to the Service, including but not limited to billing and collection of fees, and Affiliate continues to exercise such authority with respect to matters affecting the distribution of the Service by such System; c. that a valid franchise is in effect through the term of this Agreement or franchisee has held a valid cable television franchise and continues to operate in the franchise area under a claim of right or it is otherwise lawfully operating or franchisee has held a valid cable franchise and is continuing to operate while diligently pursuing, in good faith, its available judicial remedies. For the above purposes, in the event franchise expires before the end of the term of the Agreement, such franchise shall be deemed valid for so long as franchisee is negotiating in good faith with the franchising authority for the franchise renewal. d. TCI is not sub-distributing and will not in the future sub-distribute, nor does it claim to be authorized to sub-distribute, the Service throughout any cable television System which does not satisfy the requirements set forth above. 19 [*] CONFIDENTIAL TREATMENT REQUESTED 2. [*] 20 EX-10.53 11 AMENDMENT TO AFFILIATION AGREEMENT EXHIBIT 10.53 AMENDMENT TO AFFILIATION AGREEMENT BY AND BETWEEN INTERNATIONAL FAMILY ENTERTAINMENT, INC. AND SATELLITE SERVICES, INC. This Amendment is made as of the 1st day of January, 1994, to the Affiliation Agreement, dated as of December 28, 1989, as amended from time-to- time prior to the date hereof (collectively, the "Agreement"), by and between International Family Entertainment, Inc. d/b/a The Family Channel ("Network"), and Satellite Services, Inc. ("Affiliate"). All defined terms used and not otherwise defined herein shall have the meanings ascribed to them in the Agreement. In consideration of the mutual covenants and promises contained herein and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto agree to amend the Agreement as follows: 1. Notwithstanding anything in the Agreement to the contrary, the monthly per subscriber Service Fees (excluding any adjustments thereto for discounts, if any, including, without limitation, marketing support and/or channel placement) for calendar year 1994 shall be: (i) In consideration of the Service Fees to be paid by Affiliate pursuant to Section 1(ii) below, the monthly per subscriber Service Fees for January 1, 1994 through and including March 29, 1994 (prorated for the month of March) shall be the same as the monthly per subscriber Service Fees for the last quarter of calendar year 1993. (ii) The monthly per subscriber Service Fees for March 30, 1994 (prorated for the month of March) through and including December 31, 1994 shall be the monthly per subscriber Service Fees payable pursuant to Section 7(a) of the Agreement, plus "Z." For purposes of this Amendment, "Z" shall be calculated as follows: (A) First, add the number of Affiliate Subscribers, calculated in accordance with Section 7(d) of the Agreement, for the months of January, February and March, 1994. The resulting amount shall be referred to herein as "X." (B) Second, subtract the monthly per subscriber Service Fees for the last quarter of calendar year 1993 from the monthly per subscriber Service Fees payable pursuant to Section 7(a) of the Agreement for the first quarter of calendar year 1994, without giving effect to this Amendment. Multiply the result of such subtraction by 1.08 and then divide the result of such multiplication by nine. The resulting amount shall be referred to herein as "Y." (C) Third, multiply "X" by "Y," and then divide the result of such multiplication by the number of Affiliate Subscribers, calculated in accordance with Section 7(d) of the Agreement, for the pertinent month. The resulting amount shall equal "Z." 2. Notwithstanding anything in Section 7(g) of the Agreement to the contrary, if the monthly per subscriber Service Fees payable pursuant to this Amendment for the months of April through December, 1994, would cause Network to violate Section 7(g) of the Agreement, Affiliate shall waive its rights under Section 7(g) of the Agreement solely and exclusively for those months in calendar year 1994 in which such violation would otherwise occur. Affiliate does not waive the rights conferred under Section 7(g) of the Agreement with respect to any violation by Network of said Section 7(g) which does not result from the calculation of the monthly per subscriber Service Fees for April through December, 1994, as set forth in this Amendment. 3. From and after January 1, 1995, this Amendment shall be superseded, and the Agreement shall otherwise remain in full force and effect. The Agreement, as modified and amended by this Amendment, shall remain in full force and effect. IN WITNESS WHEREOF, the parties have caused this Amendment to be duly executed by their authorized representatives as of the date first above written. AFFILIATE: NETWORK: By: /s/ Jedd S. Palmer By: /s/ Craig R. Sherwood ------------------------ ------------------------------- Jedd S. Palmer Vice President, Programming Its: Craig R. Sherwood ------------------------------- Title: Senior Vice President, ---------------------------- Affiliate Relations 2 EX-10.55 12 TRANSPONDER PURCHASE AGREEMENT FOR GALAXY V Portions of this exhibit have been deleted and filed separately with the Securities and Exchange Commission pursuant to a request for confidential treatment. The redacted portions are identified by brackets with the character "*" indicating deleted information. EXHIBIT 10.55 TRANSPONDER PURCHASE AGREEMENT FOR GALAXY V BETWEEN HUGHES COMMUNICATIONS GALAXY, INC. AND INTERNATIONAL FAMILY ENTERTAINMENT, INC. [*] CONFIDENTIAL TREATMENT REQUESTED
TABLE OF CONTENTS Page ---- 1. THE SATELLITES....................................................................................... 1 1.01 Satellites..................................................................................... 1 1.02 Scheduled Launch and Delivery Dates............................................................ 1 1.03 Transponders................................................................................... 2 1.04 Hybrid Satellites.............................................................................. 2 1.05 Specifications and Components.................................................................. 2 2. PURCHASE AND SALE OF TRANSPONDERS.................................................................... 2 3. PURCHASE PRICE AND PAYMENT SCHEDULE.................................................................. 3 3.01 Purchase Price Components Description.......................................................... 3 3.02 Purchase Price Component Amount................................................................ 3 3.03 Place of Payment............................................................................... 4 3.04 Prompt Repayment............................................................................... 4 4. DELIVERY AND RELATED MATTERS......................................................................... 4 4.01 Delivery....................................................................................... 4 4.02 Ownership, Title and Assumption of Risk........................................................ 5 4.03 Acceptance..................................................................................... 5 4.04 [*]............................................................................................ 5 4.05 [*]............................................................................................ 5 4.06 [*]............................................................................................ 5 4.07 [*]............................................................................................ 6 4.08 [*]............................................................................................ 7 4.09 [*]............................................................................................ 7 4.10 [*]............................................................................................ 8 4.11 [*]............................................................................................ 8 4.12 [*]............................................................................................ 9 4.13 Entitlement to Usage........................................................................... 9 5. REPRESENTATIONS AND WARRANTIES....................................................................... 10 5.01 Authority, No Breach........................................................................... 10 5.02 Corporate Action............................................................................... 10 5.03 Consents....................................................................................... 10 5.04 Litigation..................................................................................... 11 5.05 No Broker...................................................................................... 11
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TABLE OF CONTENTS Page ---- 6. ADDITIONAL REPRESENTATIONS, WARRANTIES AND OBLIGATIONS OF HCG........................................ 11 6.01 Authorization Description..................................................................... 11 6.02 Transponder Performance Specifications........................................................ 11 6.03 Title......................................................................................... 11 6.04 Government Regulations........................................................................ 11 6.05 Not a Common Carrier.......................................................................... 12 6.06 TT&C.......................................................................................... 12 6.07 Transponder Customers......................................................................... 12 6.08 Transfers by HCG.............................................................................. 12 7. ADDITIONAL REPRESENTATIONS, WARRANTIES AND OBLIGATIONS OF BUYER...................................... 12 7.01 Transponder Usage............................................................................. 12 7.02 Non-Interference.............................................................................. 13 7.03 Government Regulations........................................................................ 13 8. PREEMPTIVE RIGHTS AND INSPECTION OF FACILITIES....................................................... 13 9. TRANSPONDER SPARES, RESERVE TRANSPONDERS AND RETAINED PRIMARY TRANSPONDERS........................... 14 9.01 Use of Transponder Spares..................................................................... 14 9.02 Use of Reserve Transponders................................................................... 14 9.03 Simultaneous Failure -- Priority with Respect to Use of Transponder Spares.................... 15 9.04 Simultaneous Failure -- Priority with Respect to Use of Reserve Transponders.................. 15 9.05 HCG's Ownership of Primary Transponders....................................................... 15 9.06 Notice of Intent to Substitute a Reserve Transponders......................................... 16 10. TERMINATION RIGHTS................................................................................... 16 10.01 Termination by Buyer.......................................................................... 16 10.02 Termination by HCG............................................................................ 17 10.03 HCG's Right to Sell if Non-Payment............................................................ 17 10.04 Prompt Repayment.............................................................................. 17 10.05 Termination of Buyer or HCG................................................................... 17 11. FORCE MAJEURE........................................................................................ 17 11.01 Failure to Delivery........................................................................... 17
ii [*] CONFIDENTIAL TREATMENT REQUESTED
TABLE OF CONTENTS Page ---- 11.02 Failure of Performance..................................................................... 18 12. LIMITATION OF LIABILITY/BREACH OF WARRANTY......................................................... 18 12.01 Liability of HCG........................................................................... 18 12.02 Confirmed Failure.......................................................................... 18 12.03 Repayment for Failed Transponder........................................................... 19 12.04 Limitation of Liability.................................................................... 19 12.05 Obligations of Buyer to Cooperate.......................................................... 20 12.06 Scheduled Delivery Date.................................................................... 20 13. LIMITATIONS ON TRANSFER BY BUYER................................................................... 20 13.01 Transfers Generally........................................................................ 20 13.02 Transfer After Delivery.................................................................... 21 13.03 [*]........................................................................................ 22 13.04 Affiliate.................................................................................. 22 14. ENFORCEMENT OF USAGE RESTRICTIONS.................................................................. 22 14.01 Buyer's Restrictions....................................................................... 22 14.02 HCG's Enforcement Rights................................................................... 22 15. PROGRESS REPORTS, INSPECTIONS AND ACCESS TO WORK IN PROGRESS....................................... 22 15.01 Progress Reports........................................................................... 22 15.02 Inspection Rights of Buyer................................................................. 23 15.03 Access to Work in Progress and Selection of Transponders................................... 23 15.04 After Delivery Reports..................................................................... 23 16. CONFIDENTIALITY AND PRESS RELEASES................................................................. 23 16.01 Confidential Information................................................................... 23 16.02 Press Releases............................................................................. 24 17. DISPOSITION OF SATELLITE........................................................................... 24 17.01 Post-Warranty Period....................................................................... 24 17.02 Disposition of Satellite................................................................... 24
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TABLE OF CONTENTS Page ---- 18. DOCUMENTS.................................................................................... 25 19. CONFLICTS.................................................................................... 25 20. MISCELLANEOUS................................................................................ 25 20.01 Interest............................................................................. 25 20.02 Applicable Law and Entire Agreement.................................................. 25 20.03 Notices.............................................................................. 25 20.04 Severability......................................................................... 26 20.05 Taxes................................................................................ 27 20.06 Successors........................................................................... 27 20.07 Headings............................................................................. 27 20.08 Survival of Representatives and Warranties........................................... 27 20.09 No Third-Party Beneficiary........................................................... 27 20.10 Non-Waiver of Breach................................................................. 27 20.11 Counterparts......................................................................... 28
EXHIBITS A Spacecraft Replacement Plan B.1 Transponder Performance Specifications: Galaxy V B.2 Transponder Performance Specifications: Galaxy Backup C Descriptions of Transponders D Monthly Lease Rate Calculation E Transponder Customer Lint F Agreed Uses G Description of Transponder Spares iv [*] CONFIDENTIAL TREATMENT REQUESTED This agreement (the "Agreement") is made and entered into as of this 23rd day of January, 1992 (the "Execution Date"), by and between Hughes Communication Galaxy, Inc. ("HCG") a corporation organized and existing under the laws of the State of California, and International Family Entertainment, Inc. ("Buyer"), a corporation organized and existing under the laws of the State of Delaware: RECITALS -------- WHEREAS, HCG intends to construct, launch and operate a number of satellites, each containing C-Band capacity and desires to sell transponders on such satellites; and WHEREAS, Buyer desires to purchase and HCG desires to sell certain transponders on one of such satellites. AGREEMENT --------- NOW, THEREFORE, in consideration of the mutual promises set forth below, HCG and Buyer hereby mutually agree as follows: 1. THE SATELLITES -------------- 1.01 Satellites. HCG shall [*] a minimum of [*] referred to hereinafter ---------- as [*] HCG plans to launch certain other satellites to be located at the orbital positions listed on Exhibit A or at such other positions as to which such satellites, or their [*] in the event of a [*] may be assigned by the Federal Communications Commission ("FCC") (with all such satellites hereinafter referred to as the "Galaxy Fleet"). "Satellite" shall mean any one of the Galaxy Fleet satellites. 1.02 Scheduled Launch and Delivery Dates. The proposed launch plan, ----------------------------------- orbital positions, Spacecraft Replacement Plan and the "Scheduled Launch Dates" of the Two Satellites are set forth on Exhibit A. HCG shall use its reasonable best efforts to make Delivery (as defined in Section 4.01) no later than 60 days after the Scheduled Launch Dates (the "Scheduled Delivery Dates"). HCG shall use its reasonable best efforts to cause the launches to occur on or about the Scheduled, Launch Dates and Delivery to occur on or about the Scheduled Delivery Dates, provided, however, that HCG shall have the right to determine, in its sole discretion which launch vehicles to use, HCG shall have the right to change each of the Scheduled Launch Dates as required by the availability of launch reservations and by such other events as HCG determines require changes in such dates, and HCG shall not be required to pay for launch services at commercially unreasonable rates, based on prevailing launch market rates, to obtain a particular launch date. The Scheduled Deliver) Dates shall not change as a result of any change in the Scheduled Launch Dates. HCG shall have the right to use earlier launch dates for either of the Two Satellites; provided, however, that Delivery for any of Buyer's Transponders (as defined in Section 2) shall not be accelerated by more than three (3) months without the consent of Buyer unless otherwise agreed by the parties. If HCG 1 [*] CONFIDENTIAL TREATMENT REQUESTED does not make Delivery on the Scheduled Delivery Date, it shall use its reasonable best efforts to make Delivery as soon thereafter as possible. The actual date of Delivery of Buyer's Transponders shall be called the "Delivery Date." Notwithstanding anything elsewhere in this Agreement to the contrary, the parties acknowledge that HCG cannot, and shall not, be obligated to Deliver Transponders on Galaxy V or move [*] the assigned orbital position of Galaxy V until Westar V has been removed or retired from its assigned orbital position. 1.03 Transponders. Each of the Two Satellites shall have twenty four (24) ------------ C. Band transponders (the "Transponders"). Twenty-two (22) of the Transponders on Galaxy V shall be designated "Primary." The remaining two (2) Transponders on Galaxy V shall be designated as "Reserve". "Primary Transponders" shall mean Transponders which are not preemptible and as to which the "Owners" of the Transponders, if a "Confirmed Failure" (as hereafter defined) occurs, shall have the right to preempt a Reserve Transponder in accordance with Section 9.02. "Reserve Transponders" shall mean Transponders which shall be preemptible in accordance with Section 9.02, by Owners of Primary Transponders located on the same Satellite that have suffered a Confirmed Failure. Each such Satellite also shall have six (6) "Transponder Spares," as defined in Section 9.01. All of Galaxy Backup's twenty. four (24) C-Band Transponders shall be preemptible in order to satisfy HCG's backup obligations set forth in Section 4. As used in this Agreement, "Owner" shall include the actual owner of a Transponder, including HCG if there remain any, unsold Transponders, or any permitted assignee of such owner's Transponder, or any lessee or licensee of HCG's with a term of usage of eight (8) or more years (a "Long Term Lease"). The term "purchase" shall include the execution of an agreement with HCG for a Long Term Lease. 1.04 Hybrid Satellites. If HCG uses a hybrid Satellite (i.e. a Satellite ----------------- containing both Kn-Band and C-Band capacity), then the owners or users of the Ku-Band capacity on any such hybrid Satellite shall have no rights whatsoever to use the Transponder Spares, the Reserve Transponders or any other part of the C- Band payload on such hybrid Satellite. 1.05 Specifications and Components. Exhibit B.1 sets forth the ----------------------------- "Transponder Performance Specifications", defined as certain technical specifications for the Transponders on Galaxy V, including values for each Transponder for polarization isolation, interference between Transponders, frequency response, group delay, amplitude non-linearity, spurious outputs, phase shift, cross talk. stability, transmit EIRP, uplink saturation flux density, and G/T. Exhibit B.2 lists "Transponder Performance Specifications" for Galaxy Backup. ACG shall make copies of the antenna range gain contour test data available to Buyer. Exhibit C sets forth a list of the Satellite components which constitute the Transponders to be purchased by Buyer. 2. PURCHASE AND SALE OF TRANSPONDERS --------------------------------- HCG shall sell, and Buyer shall purchase one (1) Primary Transponders on Galaxy V ("Buyer's G-V Transponders" or "Buyer's Transponders"), all of which are on a "Delivered" 2 [*] CONFIDENTIAL TREATMENT REQUESTED and "Fully Warranted" basis (as each such term is defined in Sections 4.0l and 6.02. respectively). 3. PURCHASE PRICE AND PAYMENT SCHEDULE ----------------------------------- 3.01 Purchase Price Components Description. The purchase price for each of ------------------------------------- Buyer's Transponders shall consist of a [*] The payment for each of the these Components by Buyer is mandatory, although one such component has a payment option to be chosen by Buyer. The services to be provided by HCG in return for Buyer's payment of the Purchase Price Components are described in other sections of this Agreement. All prices set forth are on a per Transponder basis. 3.02 Purchase Price Component Amount. The Purchase Price Components ------------------------------- payment terms and certain refunds for each of Buyer's Transponders shall be as follows: [*] Any change hereafter in the Schedule Launch Date shall not affect payment schedule. [*] Payments for a partial month shall be pro-rated. If one of Buyer's Transponders becomes a Failed Transponder (as defined in Section 12.01), then the [*] fee shall cease as to such Failed Transponder. [*] (as defined in Section 6.02) for such Failed Transponder and a proportionate refund (without interest) made to [*] Payments for a partial year shall be pro-rated. [*] Payments for a partial year shall be a pro-rated. [*] The [*] for each of Buyer's Transponders shall be a per month fee of [*] The [*] shall be payable as to each of Buyer's Transponders only if (i) [*] (as defined in Section 3.02(f) to be [*] and (ii) Buyer is not paying the Monthly Lease Rate (as defined in Section 4.09(b)) for such Transponder. The 3 [*] CONFIDENTIAL TREATMENT REQUESTED [*] Payments for a partial month shall be pro-rated. [*] The [*] shall be [*] for each of Buyer's Transponders, payable on the [*] If [*] (as defined in Section 4.04)[*] (without interest) for each of Buyer's G-V Transponders for which Buyer has paid [*] [*] if each of the following conditions are satisfied: (i) [*] with the Delivery of at least twenty-two (22) Transponders meeting its Transponder Performance Specifications, is in orbit and has not itself suffered a Catastrophic Failure, and has sufficient Transponders on it that meet its Transponder Performance Specifications to satisfy HCG's [*] to Buyer, (ii) [*] (as defined for all Satellites pursuant to Section 4.11) and (iii) [*] 3.03 Place of Payment. All payment by Buyer shall be made to HCG at its ---------------- principal place of business, as designated in Section 20.03, and shall be deemed to be made only upon actual receipt by HCG. All refunds by HCG shall be made to Buyer at its principal place of business as designated in Section 20.03, and shall be deemed to be made only upon actual receipt by Buyer. 3.04 Prompt Repayment. All refunds provided for in this Section 3 to be ----------------- made by HCG shall be due and paid within fifteen (15) business days of notification to HCG of the occurrence of the event giving rise to such refund and any late payment by HCG to Buyer shall be with interest calculated al the rate set forth in Section 20.01, payable with the amount due and calculated from the date payment was due until the date it is received by Buyer. 4. DELIVERY AND RELATED MATTERS ---------------------------- 4.01 Delivery. Galaxy V Delivery shall occur upon, and "Delivery", -------- "Delivered" and "Deliver", as to Galaxy V shall mean (i) the placing of the Satellite, containing all of Buyer's Transponders, in its assigned orbital position with a total of twenty-two (22) Primary Transponders on such Satellite meeting the relevant performance specifications required to complete Delivery pursuant to the Transponder Purchase' Agreement of the Owners of such Transponders (such 22 Transponders meeting their respective performance specifications being referred to hereinafter as the "22 Performing Transponders") (all of which requirement may be met through the use of Reserve Transponders or Transponder Sparest, (ii) Buyer's acceptance of its Transponders as provided for in Section 4.03 and (iii) full payment by Buyer as provided in Section 4.02. 4 [*] CONFIDENTIAL TREATMENT REQUESTED 4.02 Ownership, Title and Assumption of Risk. Ownership and title to --------------------------------------- Buyer's Transponders shall pass to Buyer at the time of Delivery to Buyer. A condition to HCG's obligation to deliver title to Buyer, and of Buyer's obtaining ownership, shall be the payment by Buyer of all amounts due to HCG on or prior to Delivery for such Transponder or Transponders. Any loss of or damage to Buyer's Transponders prior to Delivery shall be at the risk of HCG. Any loss of or damage to Buyer's Transponders after Delivery to Buyer will be at the risk of Buyer; provided however, that the foregoing shall not impair Buyer's other rights under Sections 4, 9 and 12 of this Agreement. 4.03 Acceptance. HCG shall not use Buyer's Transponders for any purpose ---------- other than testing, as set forth herein, prior to Delivery. HCG shall test each of Buyers Transponders in accordance with an acceptance test plan to be prepared hy HCG in advance of the launch of the Satellite and delivered to Buyer. Acceptance of Buyers Transponders by Buyer shall be deemed to have occurred upon completion of the following: (a) Buyer's Transponders have passed all tests set forth in the aforementioned acceptance test plan and meet the Transponder Performance Specifications; and (b) HCG has notified Buyer in writing that it has successfully completed testing Buyer's Transponders and that Buyer's Transponders are available for service. 4.04 Late Delivery; Delivery Failure Defined. --------------------------------------- (a) "Late Delivery", as to Galaxy V, shall mean failure to place such Satellite in its assigned orbital position with the 22 Performing Transponders within thirty (30) days after the Scheduled Delivery Date. (b) "Delivery Failure" of Galaxy V shall mean failure, after a launch attempt has occurred, to place such Satellite in its assigned orbital position with the 22 Performing Transponders within ninety (90) days after the launch date, or on the Scheduled Delivery Date if such Satellite was launched earlier than the initial Scheduled Launch Date specified in Exhibit A. As used herein, launch attempt shall mean the actual lift off of the launch vehicle. 4.05 [*] is scheduled to be launched in advance of launching Galaxy V in order to provide actual, [*] for the Galaxy Fleet 4.06 [*] (a) If a [*] occurs after the [*] then HCG shall be obligated, subject to FCC approval, [*] Transponder Performance Specifications. The target [*] for each such [*] will be [*] after the [*] and HCG shall use its reasonable best efforts to [*] Delivery can occur within [*] 5 [*] CONFIDENTIAL TREATMENT REQUESTED (b) If the [*] is not Available at any time prior to the expiration of the [*] then HCG shall not be obligated to Buyer [*] Satellite or make Transponders available to Buyer [*] replacement for Buyer's use unless Buyer exercises its [*] (as defined in Section 4.07). (c) [*] Buyer shall be entitled [*] payments made for its Transponders on Galaxy V. After a single [*] of Galaxy V, HCG shall have an additional [*] after such [*] to complete [*] such that it is ready for delivery to a [*] If a [*] not ready for delivery to a [*] within [*] after a [*] (the "Satellite Readiness Date"), then Buyer shall have the right [*] of all payments made for Buyer's Transponders. In addition, Buyer shall have the right to [*] of all payments made for Buyer's Transponders if HCG has not Delivered [*] within [*] of the Satellite Readiness Date. All such repayments shall be made without interest. Except as specifically provided otherwise herein, Buyer shall not be entitled to any refund of its Galaxy V payments after only [*] If Buyer does not notify HCG of its intent to terminate its obligations pursuant to this Section 4.06(c) [*] of the date which triggers such right, Buyer shall be deemed to have waived such right. (d) No change in any of the [*] payable by Buyer shall be made by HCG as a result of any [*] or a [*] of Galaxy V or as a result of [*] except as provided in the [*] 4.07 [*] (a) If the [*] launch [*] or [*] is not Available at any time prior to the expiration of the [*] of G-V, then HCG may launch [*] (b) HCG shall determine the minimum price and payment terms needed by it to build and launch the [*] which satellite shall have at least equivalent Transponder Performance Specifications to those of [*] and shall determine an estimated launch and delivery date. The [*] shall then be offered by HCG to all entities that have committed [*] C-Band transponders on any Galaxy Fleet Satellite and have [*] or its equivalent on the same basis as it is offered to Buyer (the [*] Such entities shall have [*] days to deliver their response to such offer to HCG. If HCG obtains commitments for the [*] needed by it to build and launch the [*] then HCG shall be obligated, 6 [*] CONFIDENTIAL TREATMENT REQUESTED subject to FCC approval, to launch the [*] HCG shall use its reasonable best efforts to obtain such FCC approval and to cause construction to commence and to obtain a launch date so that [*] is ready for delivery to a launch facility within [*] and placed in its assigned orbital position and operational within [*] of HCG's receipt of the requisite commitments. The [*] shall then function, subject to Section 4.08, as the [*] 4.08 [*] If [*] suffers a [*] and Buyer exercises its [*] and thereafter [*] suffers a [*] and if the Transponder Performance Specifications of the [*] are equal to or higher than the G-V Transponder Performance Specifications, then the [*] shall, subject to FCC approval, become [*] and [*] shall become the [*] 4.09 [*] (a) Pursuant to Sections 4.09 through 4.12, Buyer shall have certain rights to use Transponders on [*] Since [*] is to be used for the protection of a number of Satellites, it will be moved to the Galaxy V orbit position in accordance with Sections 4.10 or 4.11 only if it is Available. (b) If and when a Transponder on [*] is used by Buyer in accordance with Sections 4.10 through 4.12, then (i) Buyer shall begin paying a monthly lease payment per Transponder [*] calculated in Exhibit D) for such [*] (the [*] (ii) [*] for such Transponder and (iii) pursuant to [*] If Buyer has made a lump sum payment of the [*] then Buyer shall [*] (c) Nothing shall prevent HCG from using [*] for other services or as a [*] for satellites not part of the Galaxy Fleet so long as, if [*] is needed to backup Galaxy V in accordance with Sections 4.10, 4.11 and 4.12 or the other Galaxy Fleet Satellites, then such other service or use is preemptible. HCG shall be entitled to use [*] only in orbital positions assigned to it by the FCC or to which the FCC allows it to be moved. [*] shall not be moved to another orbital position at a rate faster than [*] unless [*] of Galaxy V or another Galaxy Fleet Satellite which has suffered a [*] (as defined in the equivalent to Section 4.11 in the Transponder Purchase Agreement of any other Owner). 7 [*] CONFIDENTIAL TREATMENT REQUESTED 4.10 [*] If any of the following occurs: (i) [*] of Galaxy V occurs and [*] is no longer in service, (ii) [*] Galaxy V, (iii) Galaxy V is not [*] (as defined below) or (iv) on [*] HCG knows of circumstances which will prevent HCG from making Delivery of Galaxy V on or before [*] then the following shall occur: (a) HCG, subject to FCC approval (which HCG shall promptly use its best efforts to obtain), shall cause [*] provided it is Available, to be moved to the orbit position of Galaxy V [*] of the earlier of notification to HCG or HCG's knowledge of the aforementioned event; (b) Buyer shall [*] a number of Transponders on [*] equal to the number of Transponders it has [*] on Galaxy V, and shall pay the Monthly Lease Rate for each Transponder on [*] that it is [*] and (c) Buyer shall continue such lease of [*] Transponders until the earlier to occur of (1) [*] by HCG of G-V or a [*] as appropriate, in such orbital position, at which time Buyer, if [*] to [*] Buyer's Transponders, shall commence paying the monthly [*] or (2) [*] Galaxy V shall be deemed [*] HCG has delivered Galaxy V to the launch facility at which HCG has contracted for the launch of Galaxy V, and the launch date is on or before a date that is expected to result in [*] 4.11 [*] If, after successful Delivery of Buyer's Transponders on Galaxy V, Galaxy V experiences a [*] then the following shall occur: (a) HCG, subject to FCC approval (which HCG shall promptly use its best efforts to obtain), shall cause [*] provided it is Available, to be moved to the orbit position of Galaxy V [*] earlier of notification to HCG or HCG's knowledge of such [*] (b) Buyer shall lease a number of Transponders on [*] equal to the number of Transponders it had purchased on Galaxy V and shall pay the Monthly Lease Rate for each Transponder on [*] that it is leasing; and (c) Buyer shall continue such lease of [*] Transponders until the earlier to occur of (1) the successful placement with the requisite number of Transponders meeting the Transponder Performance Specifications by HCG of a [*] in such orbital position, at which time Buyer, if [*] is 8 [*] CONFIDENTIAL TREATMENT REQUESTED Available to [*] Buyer's Transponders, shall resume paying the monthly [*] or (2) the [*] HCG agrees that the [*] and [*] definitions shall require the same or a greater level of failure for all other Galaxy Fleet Satellites for the purposes of determining whether HCG [*] 4.12 [*] If any of Buyer's Transponders on Galaxy V become Failed Transponders or Delivery of Buyer's G-V Transponders is delayed past their Scheduled Delivery Date, then the following shall occur: (a) Buyer shall have the right, provided that such Transponders are "non-committed" (as defined below), to [*] Buyer shall have the right to lease such Transponders in whatever location [*] may then be, provided that Buyer commits to such a lease within [*] days following the occurrence of the event giving rise to the right; (b) Buyer shall pay the [*] for each Transponder on [*] that it is leasing; and (c) Buyer shall continue such [*] until the earlier to occur of (1) the successful placement with the requisite number of Transponders meeting the Transponder Performance Specifications by HCG of [*] as appropriate [*] in the Galaxy V orbital position, at which time Buyer, if [*] is Available to [*] Buyer's Transponders, shall commence or resume, as appropriate, paying the monthly [*] (2) the end of [*] (3) [*] in accordance with Sections 4.09, 4.10 and 4.11, or the equivalent of such Sections in the purchase agreement of any other Owner. A Transponder on [*] shall be deemed to be [*] if such Transponder is not already being used by an entity having [*] over Buyer pursuant to the exercise of its right to use such Transponder as a result of payment to HCG for an [*] or its equivalent, in connection with its purchase of a transponder or transponders on a Satellite. 4.13 Entitlement to Usage. If Owners of [*] on Galaxy V become -------------------- simultaneously entitled to lease Transponders on [*] the Owner of the Primary Transponder with the [*] or, if not so set forth, then the Owner (or Owner's predecessor in interest) who first executed a Transponder Purchase Agreement with HCG for the purchase of a Primary Transponder shall have a priority as to the [*] Transponders. 9 5. REPRESENTATIONS AND WARRANTIES ------------------------------ HCG and Buyer each represent and warrant to the other that: 5.01 Authority, No Breach. It has the right, power and authority to enter -------------------- into, and perform its obligations under, this Agreement. The execution, delivery and performance of this Agreement shall not result in the breach or non-performance of any agreements it has with third parties. 5.02 Corporate Action. It has taken all requisite corporate action to ---------------- approve execution, delivery and performance of this Agreement, and this Agreement constitutes a legal, valid and binding obligation upon itself in accordance with its terms. 5.03 Consents. The fulfillment of its obligations hereunder will not -------- constitute a material violation of any existing applicable law, rule, regulation or order of any governmental authority. All material necessary or appropriate public or private consents, permissions, agreements, licenses, or authorizations to which it or any Transponder or any Satellite may be subject have been or shall be obtained in a timely manner; provided, however, that it shall be HCG's sole responsibility to obtain any regulatory approvals needed to enable it to sell Transponders as provided for in this Agreement. Notwithstanding the above, HCG and Buyer acknowledge that the transactions set forth in this Agreement may be challenged before the FCC of a court of competent jurisdiction by other persons or entities not parties hereto. In such event. HCG and Buyer agree that HCG shall use its best efforts, and Buyer shall use reasonable efforts, before the FCC, and the courts if an appeal from an FCC order is taken, to support HCG's right to sell and Buyer's right to purchase Buyer's Transponders and shall fully cooperate with each other in these endeavors. Buyer alone shall have the right to determine how much and to whom it will incur legal expenses in connection with any proceeding arising out of its obligations under this Section 5.03. If, however, by written order, the FCC or a court of competent jurisdiction shall determine that HCG may not tell and Buyer may not purchase Buyer's Transponders under the terms and conditions set forth herein, then HCG and Buyer shall seek immediate review of such order before the FCC or an appellate court or shall, if possible, reconstitute the transaction to comply with such order and to provide Buyer with use of "equivalent capacity" on the Satellites and to provide HCG with the "price provided for herein." As used herein, "equivalent capacity" shall mean the same number of Transponders purchased by Buyer pursuant to this Agreement; provided that the Satellites are dedicated primarily to Cable Entertainment Services (as defined in Section 7.01) and that HCG is able to reconstitute its transponder purchase agreement with the Turner/HBO Limited Purpose Joint Venture, and there is no material adverse change in the provisions of this Agreement regarding purchase price taking into account payment terms using a present value analysis, tax benefits from the form of the transactions, Warranty Period, use of Transponder Spares and Reserve Transponders, and Transponder Performance Specifications. As used herein, "price provided for hereto" shall mean the total price payable to HCG, taking into account payment terms, using a present value analysis with a 12% annual discount rate, and tax benefits from the form of the transactions. If an appellate court issues a written order, which is no longer subject to further judicial rehearing or review, upholding the determination 10 of the FCC or a court of competent jurisdiction that HCG may nor sell and Buyer may not purchase Buyer's Transponders, then HCG and Buyer shall, if possible, reconstitute the transaction as set out herein. 5.04 Litigation. To the best of its knowledge, there is no outstanding or ---------- threatened judgment, pending litigation or proceeding, involving or affecting the transaction provided for in this Agreement, except as has been previously or concurrently disclosed in writing by either party to the other. 5.05 No Broker. It does not know of any broker, finder or intermediary --------- involved in connection with the negotiations and discussions incident to the execution of this Agreement, or of any broker, finder or intermediary who might be entitled to a fee or commission upon the consummation of the transactions contemplated by this Agreement. 6. ADDITIONAL REPRESENTATIONS, WARRANTIES AND OBLIGATIONS OF HCG ------------------------------------------------------------- 6.01 Authorization Description. HCG has obtained from the FCC the ------------------------- authority to launch and operate the Two Satellites and to sell or lease Transponders on each of the Two Satellites on a private non-common carrier basis. HCG has obtained from the FCC the authority to place Galaxy V in geostationary orbit at 125' West Longitude and shall utilize such orbital location or the existing orbital location for Westar V unless prevented by subsequent order of the FCC or any successor thereto, in which event HCG shall utilize such other orbital position closest to such position that the FCC or any successor thereto may designate for such Satellite and, to the extent possible, the orbital position closest to those positions outlined above. The Two Satellites will be "communications satellites" (as defined in Section 1.03(3) of the Communications Satellite Act of 1962, 47 U.S.C. 702(3)). 6.02 Transponder Performance Specifications. Buyer's Transponders, upon -------------------------------------- Delivery, shall al least meet the Transponder Performance Specifications throughout the duration of the Warranty Period. "Warranty Period" shall mean that period of time commencing on the Delivery Date and continuing until ten (10) years after the Delivery Date. "Fully Warranted" as to Buyer's G-V Transponders shall mean that, if any of Buyer's G-V Transponders become Failed Transponders during the Warranty Period, then Buyer shall be entitled to the repayment set forth in Section 12.03. 6.03 Title. Upon Delivery and subject to Section 4.02, HCG shall deliver ----- to Buyer good title to each of Buyer's Transponders free from all liens, charges, claims or encumbrances, except for any encumbrances resulting from any action taken by Buyer. 6.04 Government Regulations. HCG has or shall use its best efforts ---------------------- throughout the Warranty Period, and until disposition of Galaxy V pursuant to Section 17, to obtain and maintain, in all material respects, all applicable federal, state and municipal authorizations or permissions to construct, launch and operate the Two Satellites, applicable to it; and to comply, in all material respects, with all such government regulations regarding the construction, launch and operation of the Two Satellites and Transponders applicable to it. 11 [*] CONFIDENTIAL TREATMENT REQUESTED 6.05 Not a Common Carrier. Unless required to do so by the FCC, HCG shall -------------------- not hold itself out, publicly or privately, as a provider or common carrier communications services on Galaxy V and is not purporting herein to provide to Buyer or to any other party any such services with respect to Galaxy V. 6.06 TT&C. Tracking, telemetry and control ("TT&C") shall be provided by ---- Hughes Communications Satellite Services, Inc. ("HCSS"), an affiliate of HCG, for the life of the [*] pursuant to a separate "TT&C Service Agreement" which has been executed by HCSS and Buyer concurrently herewith. The [*] is to pay HCSS for these services. 6.07 Transponder Customers. Exhibit E, which will ix: delivered by HCG to --------------------- Buyer within sixty (60) days of the Execution Date, and updated every sixty (60) days thereafter until all Transponders have been committed, is a list of all customers who have executed a Transponder Purchase Agreement (or other agreement providing for the Transfer of a Transponder, other than for short term leases or part time video as set forth in Section 6.08) and the number of Transponders such customers will purchase pursuant to such agreement on Galaxy V and the [*] of each such customer. Where such customer has the [*] its purchase obligations as to any Transponder, the number of Transponders as to which it has a [*] is indicated. Where such customer has an option to purchase additional Transponders, the number of Transponders as to which it has an option is also indicated. Exhibit E will also indicate the [*] of each such committed Transponder under Sections 8 and 9 and other Sections of this Agreement, and if such committed Transponder is a Reserve Transponder. 6.08 Transfers by HCG. HCG shall not Transfer, as defined below, other ---------------- than for part time video or for leases with a term of less than two (2) years, any of the Transponders to any third party without requiring, in all such agreements, clauses substantially identical to the provisions in Sections 7.02, 7.03, 8, 9.01, 9.02, 9.03, 9.04, 9.05, 10.01, 12.02, 12.05, 14, 17, the first sentence of 20.02, 20.05 and 20.09. "Transfer' shall mean to grant, sell, assign, encumber, permit the utilization of, license, lease, sublease or otherwise convey, directly or indirectly, in whole or in part. Any Transfer by HCG for part time video or under a lease for a term of less than two (2) years without such clauses shall be consistent, in all material respects, with HCG's obligations to Buyer under this Agreement. 7. ADDITIONAL REPRESENTATIONS, WARRANTIES AND OBLIGATIONS OF BUYER --------------------------------------------------------------- 7.01 Transponder Usage. ----------------- (a) Buyer agrees to the G-V Transponder usage restrictions and obligations set forth on Exhibit F (the "Agreed Uses") for a period of two years following Delivery of such Satellite, such usage to commence no later than ninety (90) days following Delivery. In addition, Buyer agrees to use Buyer's G-V Transponder, or Buyer's G-V Transponders in the aggregate if more than one Transponder is purchased, primarily for "Cable Entertainment Services" (as defined below) for the 12 useful life of such Transponder(s) or any replacement or backup Transponders hereunder. (b) The Agreed Uses and the restrictions on use for Cable Entertainment Services shall bind any successor-in-interest, or any assignee. of Buyer or Buyer's rights hereunder and shall bind any purchaser or successor-in-interest to Buyer's Transponders (i.e.. the usage restrictions shall follow the programming and Buyer's Transponders). (c) HCG shall include in the Transponder Purchase Agreement of each other Owner (or other agreement providing for the Transfer of a Transponder, other than for short term leases or part time video as set forth in Section 6.08) a provision requiring each such Owner to use its Transponder, or Transponders in the aggregate, primarily for Cable Entertainment Services. "Cable Entertainment Services" shall mean consumer entertainment and information services which shall be delivered to cable television systems and which may also be concurrently delivered through other forms of distribution to consumers. (d) These provisions are of the essence to this Agreement. 7.02 Non-Interference. Buyer's radio transmissions to the Two Satellites ---------------- shall comply with FCC and other governmental orders, rules and regulations, and shall not interfere with the use of any other Transponder. Buyer shall not utilize any of Buyer's Transponders in a manner which will or may interfere with the use of any other Transponder or cause physical harm to any of Buyer's Transponders, any other Transponders, or to the Satellites. For purposes of this Section 7.02, interference shall also mean causing a Transponder to fail to meet its Transponder Performance Specifications. 7.03 Government Regulations. Buyer shall use its best efforts to comply, ---------------------- throughout the Warranty Period and until disposition of the Satellites pursuant to Section 17, in all material respects, with ale government regulations regarding the operation of the Two Satellites and its purchase and use of Buyer's Transponders applicable m it. 8. PREEMPTIVE RIGHTS AND INSPECTION OF FACILITIES ---------------------------------------------- Buyer recognizes that it may be necessary in unusual or abnormal situations or conditions for HCG deliberately to preempt or interrupt Buyer's use of each of its Transponders, in order to protect the overall performance of the Satellites. Such decisions shall be made by HCG in its sole discretion; provided, however, that, to the extent it is technically feasible, HCG shall preempt or interrupt the use of Transponders in the inverse order of priority as set forth on Exhibit E or, If not so set forth, in the inverse order in which the Owners (or such Owner's predecessors in interest) on such Satellite executed Transponder Purchase Agreements for its Transponders on such Satellite. To the extent technically feasible, HCG shall give Buyer at least forty-eight (48) hours' notice of such preemption or interruption and HCG shall use its reasonable best efforts to schedule and conduct its activities 13 during periods of such preemption or interruption so as to minimize the disruption to the use of Transponders on such Satellite. To the extent that such preemption results in a loss to Buyer of the use of Buyer's Transponders sufficient to constitute a breach of HCG's warranty obligations as set forth in Section 12, then Buyer shall have all of the rights and remedies set forth in Sections 4. 9 and 12. 9. TRANSPONDER SPARES, RESERVE TRANSPONDERS AND RETAINED PRIMARY TRANSPONDERS -------------------------------------------------------------------------- 9.01 Use of Transponder Spares. HCG shall cause Galaxy V to contain ------------------------- certain redundant equipment units (individually, a "Transponder Spare") as described in Exhibit G, which are designed as substitutes for equipment units the failure of which could cause a Transponder to fail to meet the Transponder Performance Specifications. HCG, as soon as possible and to the extent technically feasible, shall employ a Transponder Spare in such Satellite as a substitute for Buyer's Transponder equipment unit which has caused one of Buyer's Transponders to suffer a Confirmed Failure (as defined in Section 12.02) in order to enable Buyer's Transponders to meet the Transponder Performance Specifications. To the extent technically feasible, a Transponder Spare will be substituted for the faulty equipment unit on a first-needed, first-served basis to satisfy HCG's warranty obligations to Buyer and to other Owners or users of Transponders on the same satellite which have suffered Confirmed Failures; provided, however, that HCG's obligations to provide Transponder Spares shall continue until such time as all of the Transponder Spares are committed to use as substitutes for Transponders which have suffered Confirmed Failures. If HCG furnishes a Transponder Spare to Buyer as a substitute for an equipment unit which has caused Buyer's Transponder to suffer a Confirmed Failure, then HCG shall transfer title and ownership of the Transponder Spare to Buyer, and Buyer, concurrently, shall return title and ownership of its substituted Transponder equipment unit to HCG. Buyer's Transponder equipment unit which has been returned shall be made available by HCG, to the extent technically feasible, to satisfy its obligations to Owners or users on the same Satellite. HCG also shall have the right, until the Transponder Spares are needed, to utilize such Transponder Spares in any manner HCG determines. 9.02 Use of Reserve Transponders. If no Transponder Spare is available at --------------------------- the time that Buyer's Transponder suffers a Confirmed Failure or if the use of such Transponder Spare would not correct the failure, then HCG shall employ, as soon as possible and to the extent technically feasible, and unless any delay is requested by Buyer, a Reserve Transponder on Galaxy V as a substitute for such Transponder which has suffered a Confirmed Failure; provided, however, that HCG's obligation to provide Reserve Transponders to Buyer shall continue only until such time as all of the Reserve Transponders are committed to use as substitutes for Primary Transponders which have suffered a Confirmed Failure. HCG shall include in the Transponder Purchase Agreement of any Owner who has purchased a Reserve Transponder (or in any other agreement providing for the Transfer of a Reserve Transponder) a requirement that HCG may preempt such Reserve Transponder(s) after two (2) hours notice from HCG. Reserve Transponders utilized as substitutes shall meet the Transponder Performance Specifications. Reserve Transponders, or any one of them, will be substituted 14 and utilized on a first-needed, first-served basis to satisfy HCG's obligations to Buyer and to other Owners with respect to the performance of their Primary Transponders. HCG shall have the right, in its sole discretion, to utilize first a Transponder Spare prior to furnishing a Reserve Transponder to Buyer. If HCG furnishes a Reserve Transponder to Buyer, then HCG shall transfer title and ownership of such Reserve Transponder to Buyer and Buyer concurrently shall return title and ownership of its substituted Transponder to HCG. Buyer's Transponder which has been returned to HCG shall thereafter be made available by HCG, to the extent technically feasible, to satisfy its obligations to other Owners. HCG also shall have the right, until the Reserve Transponders are needed, to utilize them in any manner HCG determines. 9.03 Simultaneous Failure -- Priority with Respect to Use of Transponder ------------------------------------------------------------------- Spares. In the event that Primary Transponders of more than one Owner - ------ simultaneously suffer a Confirmed Failure, then the Owner of the Primary Transponder with the highest priority as set forth on Exhibit E shall have priority as to the use of Transponder Spares or, if not so set forth, then the Owner (or such Owner's predecessor in interest) who first executed a Transponder Purchase Agreement with HCG shall have priority as to use of Transponder Spares with respect to said Owner's Primary Transponder or Transponders which have suffered a Confirmed Failure, to the extent technically feasible. As used in this Section 9, the term "simultaneously" shall be deemed to mean occurring within a 24-hour period. 9.04 Simultaneous Failure -- Priority with Respect to Use of Reserve --------------------------------------------------------------- Transponders. In the event that Primary Transponders of more than one Owner - ------------ simultaneously suffer a Confirmed Failure, and no Transponder Spare is available or if the use of such Transponder Spare would not correct the failure, then the Owner of the Primary Transponder with the highest priority as set forth on Exhibit E shall have priority as to the use of Reserve Transponders or, if not so set forth, then the Owner (or such Owner's predecessor in interest) who first executed a Transponder Purchase Agreement with HCG for the purchase of a Primary Transponder on such Satellite shall have priority as to use of a Reserve Transponder with respect to said Owner's Primary Transponder or Transponders which have suffered a Confirmed Failure. 9.05 HCG's Ownership of Primary Transponders. If HCG is unable to sell all --------------------------------------- of the Primary Transponders, then HCG may retain ownership of such unsold Primary Transponders ("HCG's Transponders"). (The same provision shall apply with respect to Reserve Transponders.) In such event, HCG shall have the same rights to use HCG's Transponders as any other Owners would have, including, without limitation, the right to utilize Transponder Spares and Reserve Transponders in the event HCG's Transponders do not meet the Transponder Performance Specifications. HCG also shall have the right, but not the obligation, to utilize HCG's Transponders to satisfy HCG's warranty obligations to Buyer and to other Owners. HCG shall be deemed to have been the last entity to execute a Transponder Purchase Agreement for purposes of determining its priority under the provisions of this Section 9 and other Sections of this Agreement; provided, however, that if HCG Long Term Leases an unsold Primary Transponder to a third party, such third party shall, for purposes of determining its priority under the provisions of this Section 9, or elsewhere in this Agreement, 15 be deemed to have "purchased" such Transponder and to have executed a Transponder Purchase Agreement on the date it executed such Long Term Lease. 9.06 Notice of Intent to Substitute a Reserve Transponders. Prior to the ----------------------------------------------------- substitution of a Reserve Transponder for Buyer in accordance with this Section 9, HCG shall notify Buyer in advance of its intention to so substitute the Reserve Transponder and the substitution shall be made at such time as the parties mutually agree. 10. TERMINATION RIGHTS ------------------ 10.01 Termination by Buyer. --------------------- (a) Except where there has been a Delivery Failure of Galaxy V and HCG has commenced to construct a replacement for such failed Satellite, Buyer shall have the right to cancel its obligations to purchase all of its undelivered G-V Transponders if HCG has failed to make Delivery of any such Transponders: (i) on or after December 31, 1993 if the primary cause of such failure is HCG's Fault (as defined in Section 10.01(d)) and Galaxy Backup is not Available for use as a backup to such G-V Transponders; or (ii) on or after December 31, 1994 if Galaxy Backup is not Available for use as a backup to such G-V Transponders, regardless of whether the failure to make Delivery is HCG's Fault. (b) Except where there has been a Delivery Failure of Galaxy V and HCG has commenced to construct a replacement for such failed Satellite, Buyer shall have the right to cancel its obligations to purchase all of its undelivered Transponders at any time prior to Delivery of Galaxy V if an event occurs which makes it physically impossible for HCG to manufacture or to launch such Satellite (with Buyer's Transponders placed thereon) on or before December 31, 1994, by giving written notice to HCG within thirty (30) days of such event. (c) In the event of a Delivery Failure, Buyer's right to terminate shall be governed by Section 4.06(c), herein. (d) "HCG's Fault" shall mean a failure primarily caused by HCG's negligence or intentional breach of its obligations under this Agreement and not excused by a force majeure event (as defined in Section 11). (e) If Buyer terminates its obligations as to Buyer's Transponders due to the failure to make Delivery as set forth in this Section 10 (the "Terminated Transponders"), then Buyer shall be entitled to a full refund, without interest, of all payments made for each such Terminated Transponder, less any payments made by HCG to it on account of such Terminated Transponders pursuant to 16 other provisions of this Agreement, and Buyer and HCG shall have no further obligations to each other as to each such Terminated Transponder. (f) Buyer shall notify HCG of its intent to terminate its obligations pursuant to this Section 10.01 within thirty (30) days of the date which triggers such right. 10.02 Termination by HCG. Notwithstanding anything else set forth in this ------------------- Agreement, HCG may terminate this Agreement if Buyer shall have failed to pay any amount due and payable pursuant to the provisions of Section 3, and Buyer has been given written notice by HCG of said failure and Buyer shall have failed to pay the amount due and payable within thirty (30) business days after HCG has given such notice to Buyer. Any late payments by Buyer to HCG shall be with interest calculated at the rate set forth in Section 20.01, payable wit the amount due and calculated from the date payment was due until the date it is received by HCG. 10.03 HCG's Right to Sell if Non-Payment. If, for any reason whatsoever, ---------------------------------- Buyer does not make the payments in the amounts and on the dates set forth in Section 3 and Buyer fails to cure such default as set forth in Section 10.02, then, in addition to all of its other remedies at law or in equity, HCG shall be entitled to Transfer (as defined in Section 6.08) Buyer's Transponders immediately to whomever HCG sees fit. Buyer shall not be entitled to any equitable relief as a result thereof, and Buyer's exclusive remedy shall be limited to recovery of any payments made by it to HCG, without interest, less any claim HCG has against Buyer by reason of such Buyer's default. 10.04 Prompt Repayment. All refunds provided for in this Section 10 to be ---------------- made by HCG shall be made within fifteen (15) business days of receipt by HCG of notice of termination by Buyer, and any late payment by HCG to Buyer shall be with interest calculated at the rate set forth in Section 20.01, payable with the amount due and calculated from the date payment was due until the date is received by Buyer. 10.05 Termination of Buyer or HCG. Notwithstanding anything else set forth ---------------------------- in this Agreement, either Buyer or HCG may terminate its obligations under this Agreement as to Transponders on Galaxy V if, prior to Delivery, the FCC shall have ordered the placement of Galaxy V into an orbital position further east than 89/./ or further west than 137/./, and such order shall have become a Final Order, and the parties are unable to reconstitute this Agreement pursuant to Section 5.03. As used herein, an order of the FCC becomes a "Final Order" when the FCC's action is no longer subject to administrative or judicial reconsideration, rehearing, review, stay, appeal or other similar actions which could be filed with the FCC or with any court having jurisdiction to review said action. 11. FORCE MAJEURE ------------- 11.01 Failure to Delivery. Any failure or delay in the performance by HCG ------------------- of its obligations to Deliver any Transponders shall not be a breach of this Agreement if such failure 17 or delay results from any acts of God, governmental action (whether in its sovereign or contractual capacity) or any other circumstances reasonably beyond the control of HCG, including, but not limited to, weather or acts or omissions of Buyer or any third parties (excluding the Hughes Aircraft Company and all of its direct and indirect subsidiaries and any other affiliates of HCG or the Hughes Aircraft Company with whom HCG or the Hughes Aircraft Company contracts for any components of the Two Satellites or any services with respect thereto). Nothing in this Section, however, shall be deemed to alter Buyer's absolute rights to terminate this Agreement as set forth in Section 10.01. 11.02 Failure of Performance. Any failure in the performance of the ---------------------- Transponders, once Delivered, shall not be a breach of this Agreement if such failure results from acts of God, governmental action (whether in its sovereign or contractual capacity) or any other circumstances reasonably beyond the control of HCG, including, but not limited to, receive earth station sun outage, weather or acts or omissions of Buyer or any third parties (excluding the Hughes Aircraft Company all of its direct and indirect subsidiaries, and all parties with whom HCG or Hughes Aircraft Company and all of its direct and indirect subsidiaries contract for the manufacture, construction, launch and operation of the Satellites or any components thereof), provided, however, that this provision shall not excuse HCG's obligations to provide Transponder Spares or Reserve Transponders, to the extent available and technically feasible, to satisfy its obligations as set forth in Sections 4 and 9. 12. LIMITATION OF LIABILITY/BREACH OF WARRANTY ------------------------------------------ 12.01 Liability of HCG. If (i) any one or more of Buyer's Transponders ---------------- fails to meet the Transponder Performance Specifications during the Warranty Period, (ii) such failure is deemed to be a Confirmed Failure (as defined in Section 12.02), and (iii) HCG is unable to furnish the necessary Transponder Spare or Reserve Transponder as a substitute for Buyer's Transponder, pursuant to Section 9. then such Transponder shall be deemed to be a "Failed Transponder," and Buyer, unless HCG is excused by an event set forth in Section 11.02, shall be entitled to repayment as set forth in forth in Section 12.03. HCG shall have the burden of proving the occurance of an event set forth in Section 11.02. 12.02 Confirmed Failure. A Buyer's Transponder stall be deemed to have ----------------- suffered a "Confirmed Failure" if (a) it fails to meet the Transponder Performance Specifications for a cumulative period of more than ten hours during any consecutive thirty (30) day period, (b) twenty (20) or more "outage units' (as defined below,) occur within a consecutive thirty (30) day period, or (c) it fails to meet the Transponder Performance Specifications for any period of time under circumstances that make it clearly ascertainable or predictable technically that the failure set forth in either (a) or (b) of this Section will occur. An "outage unit" shall mean the failure of Buyer's Transponder(s) to meet the Transponder Performance Specifications for fifteen (15) minutes or more in one day. Buyer shall five HCG immediate notification of any such failure, as soon after commencement of any such failure as is reasonably possible, and of the relevant facts concerning such failure. Upon HCG's verification that a Transponder(s) has suffered a Confirmed Failure, such failure shall be deemed to have commenced upon receipt by HCG of notification from Buyer, or HCG's actual knowledge, whichever first occurs, of the Confirmed Failure. As used herein, the term "day" shall mean a 24-hour period of time commencing on 12:00 Midnight Eastern Time. 12.03 Repayment for Failed Transponder. For each of Buyer's Transponders -------------------------------- for which repayment is owing hereunder, HCG shall pay to Buyer, without interest, an amount equal to the product of a fraction, the numerator of which is the number of days from the date of such failure until the cad of the Warranty Period and the denominator of which is the total number of days in the Warranty Period, multiplied by the Base Price for such Transponder as set forth in Section 3. Concurrently with payment to Buyer of such repayment, Buyer shall return title and ownership of said Transponder to HCG. In addition, if the performance of Buyer's Transponder is such that, while it fails to meet the Transponder Performance Specifications, its performance is nonetheless of some value to Buyer, then prior to accepting repayment calculated as aforesaid, Buyer shall have the right to negotiate with HCG to determine if there is a mutually agreeable reduced price upon which Buyer is willing to keep its Transponder. Any such agreement reached by Buyer and HCG shall constitute a new agreement, independent of this Agreement. 12.04 Limitation of Liability. ----------------------- (a) ANY AND ALL EXPRESS AND IMPLIED WARRANTIES, INCLUDING, BUT NOT LIMITED TO, WARRANTIES OF MERCHANTABILITY OR FITNESS FOR ANY PURPOSE OR USE, ARE EXPRESSLY EXCLUDED AND DISCLAIMED EXCEPT TO THE EXTENT SPECIFICALLY PROVIDED FOR IN SECTION 6.02, ABOVE. IT EXPRESSLY IS AGREED THAT HCG'S SOLE OBLIGATIONS AND BUYER'S EXCLUSIVE REMEDIES FOR ANY CAUSE WHATSOEVER ARISING OUT OF OR RELATING TO THIS AGREEMENT AND/OR THE TRANSACTIONS CONTEMPLATED HEREBY ARE LIMITED TO THOSE SET FORTH IN SECTIONS 4, 6.09 (IN THE LEASE ADDENDUM HERETO) 9, 10 AND 12, HEREOF, AND ALL OTHER REMEDIES OF ANY KIND ARE EXPRESSLY EXCLUDED. (b) In no event shall HCG be liable for any incidental or consequential damages, whether foreseeable or not, occasioned by any defect in the Transponders, delay in Delivery of the Transponders, failure of the Transponder to perform or any other cause whatsoever. HCG makes no warranty, express or implied, to any other person or entity concerning the Transponders and Buyer shall defend and indemnify HCG from any claims made under any warranty or representation by Buyer to any third party. The limitations of liability set forth herein shall also apply to the Hughes Aircraft Company (the manufacturer of the Satellite and the Transponders) and all affiliates thereof. (c) Notwithstanding the limitations of the first sentence of section 12.04(a) above, Buyer and HCG each shall have the right to obtain injunctive relief, if necessary, in order to prevent the other party from willfully breaching its obligations 19 under this Agreement or to compel the other party to perform its obligations under this Agreement. 12.05 Obligations of Buyer to Cooperate. If any of Buyer's Transponders --------------------------------- fails to meet the Transponder Performance Specifications, then Buyer shall use reasonable efforts to cooperate and aid HCG in curing such failure, provided that such efforts can be done at minimal or no cost to Buyer. (a) These obligations of Buyer shall include, but not be limited to, the following: (i) If there is a problem which can be compensated for by increasing the power of its transmission to the Buyer's Transponder, then Buyer shall do so, at HCG's cost and expense, to the extent it can _____ existing equipment, provided, however, that HCG shall not be able to require Buyer to increase the power of its transmission if, by doing so, it would cause interference with other Transponders on such Satellite which is prohibited by Section 7.02 of this Agreement, or interference with any other satellite; and (ii) Permitting HCG, at HCG's cost and expense, to upgrade Buyer's equipment, provided that Buyer shall be entitled to select and install such equipment and determine its configuration in accordance with its own existing operating procedures and technical requirements, and in accordance with applicable laws and regulations. (b) HCG shall give notice to Buyer if and when it requires the increase of power of the transmission of any other Owner pursuant to such Owner's obligation equivalent to this Section 12.05. HCG shall also give notice to Buyer when it acquires knowledge of any other Transponder user uplinking at power levels which might cause interference with Buyer's Transponders. If, after such increase in power, a Buyer's Transponder(s) no longer meets its Transponder Performance Specifications, HCG shall promptly take steps to reduce interference, if any, prohibited by Section 7.02. (c) Buyer's priority for the use of Transponder Spares or Reserve Transponders under Section 9 shall be determined at the time that its Transponder would otherwise have become a Failed Transponder without Buyer's cooperation under this Section 12.05. 12.06 Scheduled Delivery Date. The only consequence of HCG's failure to ----------------------- meet the Scheduled Delivery Dates shall be as set forth in Sections 4.04, 4.10 and 4.12. 13. LIMITATIONS ON TRANSFER BY BUYER -------------------------------- 13.01 Transfers Generally. Except as specifically provided for in this ------------------- Agreement, neither Buyer nor HCG shall assign its rights under this Agreement except with the written 20 [*] CONFIDENTIAL TREATMENT REQUESTED consent of the other, which consent may be given or withheld in such party's sole and absolute discretion, except that HCG shall have the right to assign any or all of its rights of obligations hereunder to any affiliate (as defined in Section 13.04) of HCG or its parent corporation, the Hughes Aircraft Company. Buyer shall not be permitted to Transfer any all its rights under this Agreement to purchase Transponders, or any part thereof, to any third party prior to Delivery of the Transponders except as otherwise specified in this Agreement or with the written consent of HCG, which consent may be given or withheld in HCG's sole and absolute discretion. Notwithstanding the foregoing, on or after the Execution Date: (a) Buyer may immediately Transfer or assign its rights under this Agreement and to all or any portion of Buyer's Transponders hereunder to any "Financing Entity," (as defined below) which shall take such rights or such Transponders subject to the terms of this Agreement and the TI&C Service Agreement, pursuant to such transfer documents as HCG shall reasonably request, consistent with its past practice for sale-leasebacks for Galaxy I, II and III; provided that no such Transfer or assignment shall relieve Buyer of any of its obligations hereunder and under the TT&C Service Agreement; and/or (b) any Financing Entity to whom any right under this Agreement or any of Buyer's Transponders have been transferred pursuant to clause (a) hereof, may, in the exercise of its remedies, if Buyer shall default in its obligations under the applicable financing agreements, transfer or assign such rights or such Transponders to any person or entity who assumes all of Buyer's obligations hereunder and under the TT&C Service Agreement, and who executes such transfer documents as HCG shall reasonably request, consistent with its past practices for Galaxy I, II and III. The right of first refusal in favor of HCG pursuant to Section 13.03 hereof will not apply to any initial Transfer permitted by this Section 13.01, i.e., a Transfer to a Financing Entity, but will apply to any subsequent Transfer by any such transferee. In no circumstance shall any Transfer under this Section 13.01 relieve Buyer of its Agreed Uses obligations under Section 7.01 and its other use obligations as set forth in Section 7.01(a). As used herein, "Financing Entity" shall mean an entity which lends funds to Buyer or which acts on behalf of entities which lend funds to Buyer to enable it to purchase Buyer's Transponders or who agrees to purchase Buyer's Transponders and lease them back to Buyer in a "sale-leaseback" arrangement. 13.02 Transfer After Delivery. After Delivery, Buyer may Transfer any of ----------------------- Buyer's Transponders, and the rights and obligations set forth herein, with respect to such Buyer's Transponder to any third party only if, prior to such Transfer, (i) such transferee executes a document, in form and substance satisfactory to HCG, by which such transferee assumes all of Buyer's obligations under the Agreement and under the TT&C Service Agreement (including, without limitation, Buyer's obligations concerning Agreed Uses, its other use obligations as set forth in Section 7.01(a) and the right of first refusal set forth in Section 13.03); and (ii) Buyer has satisfied its obligation under Section 13.03 and, if applicable, HOG has not exercised its repurchase right under Section 13.03. 13.03 [*] (a) Except as set forth in Section 13.03(c), if Buyer desires to [*] any of its Transponders [*] (as defined in Section 13.03(b)), then Buyer shall first offer by written notification to sell such Transponder(s) to 21 [*] CONFIDENTIAL TREATMENT REQUESTED [*] of (i) [*] reduced by [*] which had expired, or (ii) the price and terms for which [*] to [*] HCG shall have [*] to respond to such written offer. (b) [*] shall mean, as to each of Buyer's Transponders, that period which ends at the first to occur of either (i) the end [*] (c) The [*] in this Section shall not apply to any [*] to any [*] Buyer, provided that such [*] satisfies the obligations set forth in Section 13.02. 13.04 Affiliate. As used in this Agreement, "affiliate" shall mean any --------- [*] or other entity controlling or controlled by or under common control with Buyer or HCG, as the case may be. 14. ENFORCEMENT OF USAGE RESTRICTIONS --------------------------------- 14.01 Buyer's Restrictions. Buyer acknowledges that HCG alone shall have -------------------- the right, in its sole and absolute discretion, exercised in good faith, to determine whether a given use of the Buyer's Transponders constitutes an Agreed Use or Cable Entertainment Services, and, based on that determination, to decide whether to enforce the requirements of Section 7.01. 14.02 HCG's Enforcement Rights. All other Transponder Owners may obligate ------------------------ themselves to HCG to use the Transponders only for an "agreed use," and shall obligate themselves to use the Transponders primarily for Cable Entertainment Services (as set forth in Section 7.01(c)). Buyer further acknowledges that HCG alone shall have the right, in its sole discretion, exercised in good faith, to determine whether a given use by another Transponder owner or transferee of such Owner constitutes an "agreed use" (as defined in such Owner's Transponder Purchase Agreement) or a Cable Entertainment Service, and, based on that determination, to decide whether to enforce those provisions in such Owner's Transponder Purchase Agreement which are equivalent to Section 7.01 herein. 15. PROGRESS REPORTS, INSPECTIONS AND ACCESS TO WORK IN PROGRESS ------------------------------------------------------------ 15.01 Progress Reports. Commencing ninety (90) days after the Execution ---------------- Date and continuing until Delivery, HCG shall furnish to the Buyer on a monthly basis a written progress report on the status of the construction of the Two Satellites and a statement containing an explanation of material details, including HCG's projected Scheduled Launch Dates and projected dates of Delivery, variances from performance specifications and any remedial actions taken. HCG shall take reasonable steps to keep Buyer informed periodically of communications 22 to HCG from the FCC or any other governmental authority which materially affect Buyer and concern HCG, the Two Satellites and the Transponders or their use, and shall promptly deliver copies to Buyer of any such written communications. 15.02 Inspection Rights of Buyer. Buyer shall have the right to inspect -------------------------- Galaxy V and its Transponders during construction and prior to launch, upon reasonable notice to HCG and during normal business hours, and shall have the right to be present during ground and in-orbit testing. HCG shall give Buyer reasonable notice of the commencement of acceptance testing as set forth in Section 4.03, above. Buyer shall be supplied with the test data from such acceptance tests. 15.03 Access to Work in Progress and Selection of Transponders. Prior to -------------------------------------------------------- Delivery, except for documentation and information regarded by HCG as proprietary or trade secrets, relevant and material work in progress, including test data and documentation generated through HCG's effort pursuant to this Agreement, shall be subject to examination and inspection by Buyer. To the extent that the data and documentation to be provided by Buyer hereunder are of a type normally retained by HCG, and are not to be delivered to Buyer under this Agreement, HCG shall make them available to Buyer at it request for examination at a location designated by HCG. Subject to the provision set forth above, HCG shall also deliver copies of test data and other data generated from the testing and performance of the Satellite and the Buyer's Transponders to Buyer at any time on Buyer's request and at Buyer's expertise. HCG will also conduct ground tests of the G-V Transponders. From the Transponder ground test results furnished to Buyer and other Owners, Buyer shall promptly select, in the order set forth in Exhibit E (the priority list), its particular Transponder(s) for Delivery; provided, however, that HCG shall, prior to Buyer's selection of its Transponder(s), designate which Transponders shall be Reserve Transponders. Such selection shall be made within three (3) days of HCG's notification to Buyer of such test results and the identification of those Transponders which have not yet been selected. HCG shall furnish data necessary to determine whether the Transponders satisfy or exceed the applicable Transponder Performance Specifications in order to facilitate Buyer's selection of its Transponder(s). If the in-orbit test results vary from the ground test results, then Buyer shall have the right to substitute Transponders at Buyer's discretion, but only for uncommitted Transponders on the same Satellite (i.e., Transponders that have not been sold, leased or otherwise committed by HCG to a third party). 15.04 After Delivery Reports. After Delivery, Buyer shall receive monthly ---------------------- reports on the overall performance of Galaxy V and Galaxy Backup in the form of the Galaxy Satellite status reports similar to the Galaxy I Satellite Services Monthly Report, plus information furnished to insurer. Anomalous operations shall be reported to Buyer as soon as possible. 16. CONFIDENTIALITY AND PRESS RELEASES ---------------------------------- 16.01 Confidential Information. HCG and Buyer shall hold in confidence the ------------------------ Agreement and all Exhibits, including the financial terms and provisions hereof and all information received pursuant to Section 15, and HCG and Buyer hereby acknowledge and agree that all information related to this Agreement, not otherwise known to the public, is confidential and proprietary and is not to be disclosed to third persons without the prior 23 written consent of both HCG and Buyer. Neither HCG, nor Buyer, shall disclose such information to any third party (other than to officers, directors, employees and agents of HCG and Buyer, each of whom is bound by this Section 16.01) except: (a) to the extent necessary to comply with law or the valid order of a governmental agency or court of competent jurisdiction, or to satisfy its obligations to other Owners of Transponders; provided, however, that the party making such disclosure shall seek confidential treatment of said information; (b) as part of its normal reporting or review procedure to regulatory agencies, its parent company, its auditors and its attorneys; (c) in order to enforce its rights and perform its obligations pursuant to this Agreement; (d) to the extent necessary to obtain appropriate insurance, to its insurance agent, provided that such agent agrees to the confidential treatment of such information; and (e) to the extent necessary to negotiate clauses that will be common to all Transponder Purchase Agreements, including, but not limited to, disclosures pursuant to Section 6.07 of this Agreement, and the equivalent to Section 6.07 in the Transponder Purchase Agreement of any other Owner. 16.02 Press Releases. The parties agree that no press release relating to -------------- this Agreement shall be issued without the approval of both parties. Both parties agree, however, that a press release relative to this Agreement and including Buyer's Agreed Uses shall be simultaneously released within five (5) business days of the Execution Date. 17. DISPOSITION OF SATELLITE ------------------------ 17.01 Post-Warranty Period. After the Warranty Period and until the -------------------- earlier of such time as (i) the remaining fuel on board Galaxy V is less than four (4) pounds, or (ii) Galaxy V has fewer than eighteen (18) Transponders capable of meeting its Transponder Performance Specification, HCG shall continue to make available to Buyer, on the terms and conditions contained herein, Transponder Spares and Reserve Transponders. 17.02 Disposition of Satellite. At the earlier of the time as (i) the ------------------------ remaining fuel on board Galaxy V is less than four (4) pounds, or (ii) Galaxy V has fewer than eighteen (18) Transponders capable of meeting its Transponder Performance Specification, HCG in its sole discretion, may remove Galaxy V from its assigned orbital location and have no further obligations to Buyer under this Section 17 or this Agreement; provided, however, that until HCG so removes Galaxy V, HCG shall continue to make available to Buyer its Transponder or Transponders, Transponder Spares and Reserve Transponders as provided for in this Agreement. HCG will, to the extent possible, provide Buyer with ninety (90) days notice 24 prior to the disposition of Galaxy V pursuant to this Section 17.02. Notwithstanding anything to the contrary in Section 17.02, if any payment, refund, or other performance obligation of either party has arisen prior to Galaxy V being removed from its assigned orbital location pursuant to Section 17.02, then such party shall still be responsible to perform each such obligation. 18. DOCUMENTS --------- Each party hereto agrees to execute and, if necessary, to file with the appropriate governmental entities, such documents as the other party hereto shall reasonably request in order to carry out the purposes of this Agreement. 19. CONFLICTS --------- In the case of a conflict between the provisions of this Agreement and any Exhibit other than Exhibits B, C and G, the provisions of this Agreement will prevail. 20. MISCELLANEOUS ------------- 20.01 Interest. The rate of interest referred to herein shall be 12% per -------- annum, or the highest legal permissible rate of interest, whichever is lower, and all interest or discounting shall be compounded on a yearly basis. "Pro- rata" shall mean an allocation on a straight line basis based on number of days. All present value analyses shall use a 12% annual discount rate. 20.02 Applicable Law and Entire Agreement. The existence, validity, ----------------------------------- construction, operation and effect of this Agreement and the Exhibits hereto, shall be determined in accordance with and be governed by the laws of the State of California. This Agreement and Exhibits hereto, along with the TT&C Service Agreement, dated as of the even date herewith, constitutes the entire agreement between the parties, and supersedes all previous understandings, commitments or representations concerning the subject matter. The parties each acknowledge that the other party has not made any representations other than those which are contained herein. This Agreement may not be amended or modified in any way, and none of its provisions may be waived, except by a writing signed by an authorized officer or the party against whom the amendment, modification or waiver is sought to be enforced. 20.03 Notices. All notices and other communications from either party to ------- the other hereunder shall be in writing and shall be deemed received upon actual receipt when personally delivered, upon actual receipt if sent by facsimile or upon delivery after being deposited in the United States mails, postage prepaid, certified or registered mail, addressed to the other party as follows: 25 TO HCG:
If by mail: Hughes Communications Galaxy, Inc. Post Office Box 92424 Worldway Postal Center Los Angeles, California 90009 Attention: Senior Vice President-Galaxy cc: Vice President & Legal Counsel If by FAX: (310) 607-4255 Attention: Senior Vice President-Galaxy cc: (310) 607-4256 Vice President & Legal Counsel If by personal delivery to its principal place of 1990 Grand Avenue business at: El Segundo, California 90245 Attention: Senior Vice President-Galaxy cc: Vice President & Legal Counsel TO BUYER: If by mail: International Family Entertainment, Inc. 1000 Centerville Turnpike Virginia Beach, Virginia 23463 Attention: Timothy Robertson, President cc: Louis A. Isakoff, Vice President & General Counsel If by FAX: 804-523-7880 Attention: President, Timothy Robertson cc: Vice President and General Counsel, Louis A.Isakoff If by personal delivery to its principal place of business at: International Family Entertainment, Inc. 1000 Centerville Turnpike Virginia Beach, Virginia 23463 Attention: Timothy Robertson, President cc: Louis A. Isakoff, Vice President & General Counsel
26 All payments to be made under this Agreement, if made by mail, shall be deemed to have been made on the date of receipt thereof. The parties hereto may change their addresses by giving notice thereof in conformity with this Section 20.03. 20.04 Severability: Nothing contained in this Agreement shall be construed ------------ so as to require the commission of any action contrary to law, and wherever there is any conflict between any provision of this Agreement and any statute, law, ordinance, order or regulation, such statute, law, ordinance, order or regulation shall prevail, provided, however, that in such even the provisions of this Agreement so affected shall be curtailed and limited only to the extent necessary to permit compliance with the minimum legal requirement, and no other provisions of this Agreement shall be affected thereby and all such other provisions shall continue in full force and effect. 20.05 Taxes. If any property or sales taxes are asserted against HCG ----- after, or as a result of, Delivery, by any local, state, national or international, public or quasi-public governmental entity, in respect of Buyer's Transponders or the sale thereof to Buyer, Buyer shall be solely responsible for such taxes. If any taxes, charges or other levies are asserted by reason of the use of the point in space or the frequency spectrum at that point in space in which the Satellite containing Buyer's Transponders is located, or the use or of such Satellite (excluding any FCC license fee imposed on the Satellite itself, as compared to the Transponders, which license fee shall be paid by HCG), and such taxes are not specifically allocated among the various components of such Satellite, then HCG, Buyer and the other Owners of such Transponders shall each pay a proportionate amount of such taxes based on the number of Transponders each of them owns. 20.06 Successors. Subject to Section 13, this Agreement shall be binding ---------- on and inure to the benefit of any successors and assigns of the parties, provided that no assignment of this Agreement shall relieve either party hereto of its obligations to the other party. Any purported assignment by either party not in compliance with the provisions of this Agreement shall be null and void and of no force and effect. 20.07 Headings. The descriptive headings of the several sections and -------- paragraphs of this Agreement are inserted for convenience only and do not constitute a part of this Agreement. 20.08 Survival of Representatives and Warranties. All representations and ------------------------------------------ warranties contained herein or made by HCG or Buyer in connection herewith shall survive any independent investigation made by HCG or Buyer. 20.09 No Third-Party Beneficiary. The provisions of this Agreement are for -------------------------- the benefit only of the parties hereto, and no third party may seek to enforce, or benefit from, these provisions, except that both parties acknowledge and agree that the provisions of Sections 7.02, 8, 9.01, 9.02, 9.03 and 9.04, are intended for the benefit of both HCG and all other Owners. Both parties agree that any other such Owner shall have the right to enforce, as a third-party beneficiary, the provisions of Sections 7.02, 8, 9.01, 9.02, 9.03 and 9.04, 27 against Buyer directly, in an action brought solely by such other Owner, or may join with HCG or any other Owner, in bringing an action against Buyer for violation of such Sections. 20.10 Non-Waiver of Breach. Either party hereto may specifically waive any -------------------- breach of this Agreement by the other party, provided that no such waiver shall be binding or effective unless in writing and no such waiver shall constitute a continuing waiver of similar or other breaches. A waiving party, at any time, and upon notice given in writing to the breaching party, any direct future compliance with the waived term or terms of this Agreement, in which event the breaching party shall comply as directed from such time forward. 20.11 Counterparts. This Agreement may be executed in several ------------ counterparts, each of which shall be deemed an original, and all such counterparts together shall constitute but one and the same instrument. IN WITNESS WHEREOF, each of the parties has duly executed and delivered this Agreement as of the date and year first written above. HUGHES COMMUNICATIONS INTERNATIONAL FAMILY GALAXY, INC. ENTERTAINMENT, INC. By: /s/ Scott B. Tollefson By: /s/ Larry W. Dantzler ------------------------------- ----------------------------- Its: Vice President Its: Vice President 28 EX-10.56 13 SATELLITE TRANSPONDER SALES AGREEMENT Portions of this exhibit have been deleted and filed separately with the Securities and Exchange Commission pursuant to a request for confidential treatment. The redacted portions are identified by brackets with the character "*" indicating deleted information. EXHIBIT 10.56 C-3/C-4 SATELLITE TRANSPONDER SALES AGREEMENT --------------------------------------------- BETWEEN ------- GE AMERICAN COMMUNICATIONS, INC. -------------------------------- AND --- THE CHRISTIAN BROADCASTING NETWORK, INC. ---------------------------------------- CONTRACT NUMBER_______________ TABLE OF CONTENTS -----------------
ARTICLE SUBJECT PAGE - ------- ------- ---- 1 Definitions 2 2 Scope 9 3 Purchase Price and Payment 11 4 Title 15 5 Adjustment to Sales Price 17 6 Taxes 19 7 Warranty 20 8 Satellite Location and 22 Launch Date 9 Use of Transponders 23 10 In-Orbit Protection 25 11 Construction Delay Protection 28 12 Launch Protection 30 13 Restored Satellite Service 33 Option 14 Satellite System and 37 Authorizations 15 Operating Procedures 39 16 Transition to C-3 and C-4 41 17 Indemnification 42 18 Patent Indemnity 45 19 Limitation of Liability 48 20 Force Majeure 50 21 Confidentiality and 52 Nondisclosure 22 Representations and Covenants 56 23 Notices 60 24 Termination 62 25 Successor Satellites 68 26 Most Favored Nations 71 27 General Provisions 72
-i- -2- ARTICLE 1. DEFINITIONS - ---------------------- As used in this Agreement: A. "Agreement" means this C-3 and C-4 Satellite Transponder Sales Agreement and the Attachments hereto. B. "Commercially Operational" means a satellite or a transponder which is carrying or capable of and available for carrying broadcast quality video and audio traffic and which is not Commercially Unusable. C. "Commercial Operational Date" means the earliest date one or more Transponders on each of a Commercially Operational C-3 and a Commercially Operational C-4 Satellite are made available to carry customer communications traffic. D. "Commercially Unusable" means a condition in which a Satellite so fails to conform to its specifications or any Transponder so fails to conform to the Transponder Performance Specifications as to render use of the Satellite or Transponder impractical in the exercise of reasonable business judgment. E. "Earth Station" means the antennas and associated ground facilities equipment used to transmit telecommunications signals via a communications satellite in space. F. "End-of-Life" or "EOL" means the first to occur of the following: a determination by GE Americom in its reasonable judgment that a Satellite should be taken out -3- of service because of lack of fuel; or a Satellite has become a Failed Satellite. G. "Failed Satellite" or "Satellite Failure" means a satellite (1) on which one or more of the basic subsystems fail, rendering the satellite Commercially Unusable or on which more than twelve (12) Transponders are Transponder Failures and (2) which GE Americom has declared a failure. H. "Failed Transponder" or "Transponder Failure" means, with respect to any Transponder, the occurrence of any of the following events and CBN has declared the Transponder a Failed Transponder: 1. Such Transponder shall fail to meet the Transponder Performance Specifications in any material respect for any period of three (3) consecutive days. 2. Ten (10) or more "Outage Units" shall occur within any thirty (30) consecutive days (an Outage Unit being an interruption of such Transponder of ten (10) minutes or more, except that (a) each interruption of 10 minutes or more shall be counted as a separate outage unit and (b) interruptions caused by double illumination of CBN'S Transponder shall not be considered an outage unit for purposes of determining Transponder Failure). 3. Such Transponder shall fail to meet the Transponder Performance Specifications in any material respect for any period of time under circumstances that make it ascertainable or predictable to a reasonable, [*] CONFIDENTIAL TREATMENT REQUESTED -4- technically qualified person that either failure set forth in Paragraphs (1) or (2) will occur. 4. Any other event resulting in such Transponder being rendered Commercially Unusable. 5. Any Transponder or other transponder which for operational or technical reasons (e.g., because of a single antenna base for the reception of signals from C-3) must be restored on the Protection Satellite with the Failed Transponder or a failed transponder of [*] will also be deemed to be a Transponder Failure for purposes of restoration to the Protection Satellite. 6. CBN may only declare a Transponder a Failed Transponder within one- hundred twenty (120) days of the occurrence of any of the events enumerated in 1 through 4 above, and within thirty (30) days of the event in 5 above or such longer period of time specified in a provision relating to en masse restoration on the Protection Satellite contained in the agreement for Sale of C-3 or C-4 transponders [*]. I. "Full Protection" means the restoration plan set out in Article 10 of this Agreement. J. "Fully Protected Transponder" means a transponder which, if it becomes a Transponder Failure, has Full Protection. K. "Launch Failure" means a Satellite Failure or Transponder Failure which occurs after the first [*] CONFIDENTIAL TREATMENT REQUESTED -5- intentional ignition of the launch vehicle and before the satellite becomes Commercially Operational. L. "Interruption" or "Outage" means any period during which the Transponder fails in one or more material respects to meet the Transponder Performance Specifications and such circumstances preclude the use of the Transponder for its intended purpose as reasonably determined by CBN. M. "Party" means one of the signatories to this Agreement. N. "Preemptible Transponder" means a transponder on C-1, C-3 or C-4 that may be preempted at any time to restore a Fully Protected Transponder or a Transponder- Protected Transponder which becomes a Transponder Failure and other service offerings of GE Americom for C-3 and/or C-4 customers such as construction and launch vehicle delay protection. [*] O. "Protection Satellite" means the in-orbit C-band Satellite designated by GE Americom as the satellite to be used to restore a Failed Satellite. The Protection Satellite will be either the satellite commonly referred [*] CONFIDENTIAL TREATMENT REQUESTED -6- to as Satcom IR or Satcom C-l, unless both of these satellites are unavailable at the time C-3 or C-4 becomes a Failed Satellite. Technical Specifications for C-1 are attached hereto. P. "Protection Transponder" means a Replacement Transponder, Preemptible Transponder or unassigned transponder used to restore a Failed Transponder. Where a Protection Transponder is provided on a satellite other than C-3 or C-4, it will perform to the specifications of that satellite, and such specifications shall be substituted for those in Attachment A provided that these are not adversely and materially different from C-3, C-4, or C-1, as the case may be. Access to Protection Transponders will be in accordance with Articles 10, 11 and 12. [*] -7- Q. "Replacement Transponder" means an available spare transponder amplifier and its associated components which is accessible for purposes of restoral. R. "Satellite," "C-3" or "C-4" means a communications spacecraft designed to have twenty-four (24) sixteen (16) watt Transponders, to be constructed, launched and operated by GE Americom as a successor for its in-orbit satellites commonly referred to as Satcom IIIR and Satcom IV, respectively. C-3 and C-4 will be launched with 8-for-6 spare transponder amplifier redundancy and at least two Preemptible Transponders on each satellite. When used in the lower case, "satellite" means a domestic communications satellite operating in C-band (4/6 GHz). S. "Transponder" means a radio frequency transmission channel on the C-3 or C-4 Satellite, having a nominal bandwidth of 36 MHz, transferred to CBN pursuant to the terms of this Agreement, or a Protection Transponder supplied by GE Americom to CBN in the event the Transponder is or becomes a Transponder Failure. When used in the lower case, "transponder" means a radio frequency transmission channel on a domestic communications satellite operating in C-band. T. "Transponder-Protected Transponder" means a Transponder which will be restored if, at the time it becomes a Transponder Failure, a Replacement Transponder, a Preemptible Transponder or an unassigned Transponder is [*] CONFIDENTIAL TREATMENT REQUESTED -8- available on the Satellite on which it has been assigned. A Transponder- Protected Transponder may not be preempted to restore another Failed Transponder but will not be restored if C-3 or C-4 becomes a Satellite Failure. U. "Transponder Performance Specifications" means the specifications for the performance of CBN's Transponders set forth in Attachment A. V. "TT&C Services" or "TT&C" means tracking, telemetry and control services for C-3 and C-4 to be provided by GE Americom, including periodic stationkeeping and attitude control maneuvers, power management and fuel management. TT&C Services will be provided from GE Americom's facilities in Vernon Valley, New Jersey or South Mountain, California, or such other locations as GE Americom may determine and will be provided with at least the same level of diligence and care as for GE Americom's other satellites. W. "Unprotected Transponder" means a transponder for which there is no reserved transponder in the event of a Transponder Failure or a Satellite Failure but which is not subject to preemption by any other transponder that has failed and which shall have access to a Replacement Transponder. X. [*] means the group comprised of the following companies: [*] -9- ARTICLE 2. SCOPE - ----------------- A. GE Americom agrees to sell and CBN agrees to buy, in accordance with the terms and conditions set forth in this Agreement, all right, title and interest in one (1) Fully Protected Transponder on GE Americom's C-3 communications satellite and in one (1) Fully Protected Transponder on GE Americom's C-4 communications satellite. The Transponder number on each satellite shall be established by GE Americom at least six (6) months prior to the scheduled launch of each satellite. B. The technical performance standards of the Transponders are described in the Transponder Performance Specifications. C. Except as otherwise expressly indicated in this Agreement, CBN shall have the exclusive right to use the Transponders for all purposes allowable under this Agreement from the date CBN takes title to the Transponders through the End-of-Life of the Satellites on which the Transponders have been assigned. D. GE Americom shall give separate written notice to CBN when only three (3) uncommitted Fully Protected Transponders remain on each of C-3 and C-4, unless CBN sooner exercises its option under this Article 2.D. Such notice(s) shall be given only once. From the effective date of this Agreement until the end of thirty (30) days after such notice(s) CBN shall have an option, on written -10- notice to GE Americom, to purchase one of the remaining Fully Protected C-3 or C-4 Transponders, which will result in a total of three (3) Transponders purchased by CBN hereunder. If CBN so elects, use of the Transponder by CBN shall commence immediately if C-3 or C-4, as the case may be, already is Commercially Operational or on its Commercial Operational Date if it is not then Commercially Operational. The purchase of the C-3 or C-4 Transponder, as the case may be, shall be on the same general terms and conditions, including applicable rates and payment schedules, as are provided in this Agreement except as otherwise specified in Article 3. For purposes of this Article 2.D., an "uncommitted" transponder shall be one (1) which GE Americom has not sold or contracted to sell; (2) on which GE Americom is not providing service or has not contracted to provide service; or (3) as to which GE Americom has not given to other customers rights of first refusal or options to purchase or to take service. [*] CONFIDENTIAL TREATMENT REQUESTED -11- ARTICLE 3. PURCHASE PRICE AND PAYMENT - -------------------------------------- A. The total purchase price payable by CBN to GE Americom for each Fully Protected Transponder shall be [*] and shall be paid as follows: 1. [*] June 30, 1989 2. [*] on June 30, 1990 3. [*] on June 30, 1991 4. [*] on June 30, 1992
TT&C Services, the warranty specified in Article 7, In-Orbit Protection, Construction Delay Protection and Launch Protection [*]. B. If CBN exercises the option specified in Article 2.D., the purchase price of each Transponder shall be reduced by [*] which amount shall be deducted from the payment due from CBN to GE Americom on June 30, 1992; provided, however, that if CBN exercises such option after June 30, 1991, CBN shall pay to GE Americom interest equal to [*] on any sums shown in the schedule specified in Article 3.A. that would have been payable prior to the date of actual payment by CBN if such payment is after June 30, 1992. Such interest shall be payable for the period(s) of time from June 30, 1991 for payments 1, 2 and 3 and from June 30, 1992 for payment 4 to the date of actual payment. [*] CONFIDENTIAL TREATMENT REQUESTED -12- C. CBN shall have an option, exercisable at any time prior to October 1, 1991, upon written notice to GE Americom, to reduce its final payment in Paragraph A. above by [*] per Transponder and to pay for its In-Orbit Protection on an ongoing basis at the rate of (1) [*] per month per Transponder for the protection described in Article 10.A.1. and (2) [*] per month per Transponder for the protection described in Article 10.A.2. If CBN exercises this, option, the above payments shall commence at the Commercial Operational Date of each Transponder and continue for so long as the protection specified in (1) and/or (2) above are available to CBN. D. CBN shall have an option, exercisable at any time prior to October 1, 1991, upon written notice to GE Americom, to reduce its final payment in Paragraph A. above by [*] per Transponder, and to pay for its TT&C Services on an ongoing basis at the rate of [*] per month per Transponder. If CBN exercises this option, the above payment shall commence at the Commercial Operational Date of the Transponder and continue so long as GE Americom provides TT&C Services to CBN. [*] CONFIDENTIAL TREATMENT REQUESTED -13- E. CBN may obtain life insurance on the Transponders conveyed hereunder only after passage of title in accordance with Article 4. CBN shall make all reasonable efforts to include in any insurance policy it obtains for its Transponders a no-fault, no-subrogation, inter-party waiver of liability against GE Americom, the General Electric Company, and all other entities under their common ownership or control, but a failure to obtain such waiver shall not be considered to be a breach of this Agreement. F. GE Americom will render bills to CBN thirty (30) days prior to the due date for payment of amounts owing from CBN to GE Americom under this Agreement. GE Americom will assess a late payment charge of the prime rate plus one (1) percent compounded monthly on payments not received by the payment due date or thirty (30) days after the date the bill is rendered, whichever is later. If charges based on a monthly rate cover a period which does not commence on the first day of a month or end on the last day of a month, the monthly rate for the fractional part of the month shall be calculated at a daily rate of [*] of the monthly charge. G. GE Americom's failure to bill CBN for any charge due under this Agreement shall not relieve CBN of its obligation to pay the same on a timely basis. However, CBN shall not be obligated to pay any late charges for any -14- period for which GE Americom does not render bills as stipulated in Article 3.E. above. H. Unless otherwise agreed in writing by the Party entitled to payment, all transfers of funds in accordance with this Agreement from one Party to the other shall be by check sent to the receiving Party at its address designated in Article 23 or by wire transfer of immediately available funds to an account designated by the transferee, and shall be deemed to be made upon receipt. -15- ARTICLE 4. TITLE - ----------------- A. Subject to the provisions of Article 5 hereof, title to the Transponder shall pass to CBN upon the Commercial Operational Date of the Satellites on which the Transponders have been assigned, provided that all payments due under this Agreement to GE Americom as of the Commercial Operational Date have been made, including any interest owing on late payments. If title does not pass to CBN on the Commercial Operational Date because of CBN's failure to make all the payments due to GE Americom, including any applicable interest, title shall pass to CBN upon its paying GE Americom all amounts then owing, unless this Agreement is earlier terminated by GE Americom pursuant to Article 24.C.3. B. At least sixty (60) days prior to the Commercial Operational Date of the Satellites on which the Transponders have been assigned, GE Americom shall notify CBN in writing of the anticipated Commercial Operational Date and shall provide CBN with two (2) months of dual illumination prior to such date. Thirty (30) days prior to the Commercial Operational Date, GE Americom shall notify CBN of the projected operational life of the Satellites. C. Upon passage of title, GE Americom shall provide to CBN, upon request, appropriate indicia of ownership and title, including without limitation, a certificate, dated -16- the date of transfer of title, warranting that title is transferred free and clear of all liens, encumbrances, pledges and security interests. [*] CONFIDENTIAL TREATMENT REQUESTED -17- ARTICLE 5. ADJUSTMENT TO SALES PRICE - ------------------------------------- A. GE Americom shall advise CBN on or before the Commercial Operational Date of the projected operational life of the Satellites on which the transponders have been assigned based on stationkeeping fuel. If the projected operational life of a Satellite, as determined by GE Americom, at the Commercial Operational Date is less than [*] GE Americom shall refund to CBN a portion of the price actually paid by CBN to GE Americom in accordance with Article 3 for the Transponder, based upon the following formula: PRICE REDUCTION = NO. OF MONTHS BY PAYMENTS TO WHICH SATELLITE LIFE X GE AMERICOM UNDER FALLS SHORT OF [*] ARTICLE 3 ------------------ [*] B. If the projected life of a Satellite on which a Transponder has been assigned as determined by GE Americom at the Commercial Operational Date is less than [*], CBN may, at its option, accept title to the Transponder at a price adjusted in accordance with the provisions of this Article 5 or may decline to accept title to the Transponder, in which event GE Americom shall return to CBN all sums paid to GE Americom in accordance with Article 3 for that Transponder. -18- C. GE Americom's entire liability to CBN under this Article 5. shall consist of the payment of a refund to CBN, where applicable. In no event shall GE Americom's liability to CBN, where a refund to CBN is provided under this Article 5, exceed the amount paid by CBN to GE Americom under Article 3 hereof. -19- ARTICLE 6. TAXES - ----------------- A. Prices are inclusive of all taxes and duties existing as of the date of this Agreement. The prices are exclusive of all taxes and duties which become effective after the date of this Agreement. CBN shall pay directly, or reimburse GE Americom, for all such taxes and duties and related charges, including any privilege or excise taxes based on gross revenue, pertaining to the Transponders purchased by CBN. GE Americom shall notify CBN of any demand by any taxing authority of which GE Americom has knowledge in connection with a tax audit or otherwise for payment of any of the taxes for which CBN is liable under this Article 6. As of the date of the execution of this Agreement, GE Americom has no knowledge of any existing or proposed tax, duty, or related charge, including any privilege or excise tax based on gross revenue, that may pertain to the transponders acquired by CBN. CBN may participate, at its expense, in any proceedings or tax audits brought against GE Americom by any taxing authority in connection with CBN's Transponders, the outcome of which may affect CBN's tax liability. B. CBN may claim any tax benefits available to the owner of the Transponders by virtue of such ownership. [*] CONFIDENTIAL TREATMENT REQUESTED -20- ARTICLE 7. WARRANTY - -------------------- A. GE Americom warrants that, for the life of the Satellite (as projected under Article 5) on which a Transponder has been assigned (the "Full Warranty Period"), CBN's Transponder shall meet the Transponder Performance Specifications set forth in Attachment A in all material respects. In the event during the Full Warranty Period, a Transponder provided to CBN becomes a Failed Transponder, and GE Americom cannot provide CBN with a Protection Transponder on C-3 or C-4 that is able to meet the Transponder Performance Specifications in all material respects, the following shall apply: (1) GE Americom shall refund to CBN a portion of the payments made to GE Americom under Article 3 hereof on account of that Transponder in accordance with the following formula: REFUND AMOUNT = NO. OF MONTHS BY PAYMENTS TO WHICH XPDR LIFE X GE AMERICOM FALLS SHORT OF UNDER ARTICLE 3 PROJECTED LIFE LESS PRIOR REFUNDS -------------- UNDER ARTICLE 5 MONTHS OF LIFE PER ARTICLE 5
(2) GE Americom shall not be obligated to pay any refund if a Transponder Failure should occur after the end of the [*] month of the operational life of the Satellite, measured from the Commercial Operational Date. -21- (3) GE Americom shall provide CBN, at its request and subject to availability of facilities (i.e. provided that such facilities have not been used as provided in Article 10), with Restored Satellite Service under Article 13 of this Agreement. If CBN elects to take Restored Satellite Service, it shall be responsible for the payment of the applicable charges for such service. (4) Except for its obligation to provide CBN with protection in accordance with Articles 10, 11, 12 and 13, GE Americom shall have no other liability for any degradation, failure or loss of the Satellite or of any Transponder, or for any loss, damage or injury of any kind whatsoever resulting therefrom. B. THE FOREGOING WARRANTY REPRESENTS THE ENTIRE WARRANTY OBLIGATION OF GE AMERICOM. UNLESS OTHERWISE EXPRESSLY PROVIDED IN THIS AGREEMENT, NO OTHER WARRANTIES, WHETHER STATUTORY, EXPRESS OR IMPLIED, INCLUDING BUT NOT LIMITED TO THOSE OF MERCHANTABILITY AND FITNESS FOR ANY PARTICULAR PURPOSE SHALL APPLY TO THE GOODS AND SERVICES FURNISHED HEREUNDER. -22- ARTICLE 8. SATELLITE LOCATION AND LAUNCH DATE - ---------------------------------------------- A. GE Americom's Satcom IIIR satellite is now located at 131(degrees) W.L., and GE Americom's Sitcom IV satellite is located at 82(degrees) W.L. GE Americom expects to locate C-3 at the same position and will seek to locate C-4 at 127(degrees), 135(degrees) W.L. or at another orbital position that allows for 50-state coverage. Any orbital position will be subject to approval by the FCC. C-3 is expected to be launched in October 1992 and to become Commercially Operational by April 1, 1993. C-4 is expected to be launched in September 1992 and to become Commercially Operational by March l, 1993. GE Americom has an agreement with Arianespace to provide launch vehicle services for C-3 and C-4. B. GE Americom shall endeavor to locate C-3 at 131(degrees) W.L. and C-4 at 127(degrees), 135(degrees) or any other orbital position that allows for 50- state coverage to maintain its schedule for launch and operation of the satellites on which the Transponders have been assigned. -23- ARTICLE 9. USE OF TRANSPONDERS - ------------------------------- A. The C-3 and C-4 Satellites are intended to be used as major cable television programming satellites by cable services to distribute their programming to their affiliated cable systems. B. CBN agrees that it will use the Transponders provided under this Agreement for the transmission of the primary outbound feeds known as "CBN Family Channel (East)" and "CBN Family Channel (West)" at least until December 31, 1996, provided that all other C-3 and C-4 programmers are likewise restricted in their feed commitments. C. In no event shall the Transponders be used except for the transmission of video programming, provided that subcarriers and the horizontal and vertical blanking interval may be used for nonvideo transmissions. D. CBN shall not assign or transfer its rights or obligations under this Agreement, except to its patent corporation, to a subsidiary, to American Family Entertainment, Inc. (a prospective company that shall manage the CBN Family Channel), or to any other entity acquiring substantially all of the assets of CBN Family Channel, without first obtaining GE Americom's written consent to such assignment or transfer, which consent shall not be unreasonably withheld or delayed, provided that the prospective assignee or transferee is, in GE Americom's reasonable opinion, credit-worthy, and that it -24- will ensure that the Transponder(s) are used by cable programmer(s) which demonstrate(s) to GE Americom that, in GE Americom's reasonable discretion, its cable programming is acceptable within the meaning of 9.A. above. E. A transfer for financing purposes only is permissible provided CBN uses the Transponders as provided in this Article. F. In the event of any assignment requiring GE Americom's written consent under Paragraph D. above or any assignment to an entity acquiring all of the assets of CBN Family Channel, CBN shall be relieved of its liabilities under this Agreement upon the completion of such assignment. [*] CONFIDENTIAL TREATMENT REQUESTED -25- ARTICLE 10. IN-ORBIT PROTECTION - -------------------------------- A. 1. In the event a Fully Protected Transponder becomes a [*] GE Americom shall first attempt to restore the [*] by utilizing any available [*] is available, GE Americom shall restore the [*] by using [*] on the same Satellite, if available; and, if not available, on the other Satellite [*]. 2. [*] GE Americom shall, if so requested by CBN, restore the Transponder Failure on the Protection Satellite, if available i.e., the Protection Satellite previously has not been used to restore a Launch Failure or a Satellite Failure; has not restored such number of prior Transponder Failures or other transponders that have been afforded construction and/or launch delay protection, launch failure protection or other protection as would prevent the restoration of CBN's Transponder; or has not become a Satellite Failure. B. The Protection Satellite shall be maintained for the purpose of restoring Transponder Failures, Satellite -26- Failures, and other service offerings of GE Americom such as protecting against Launch Failures and construction and launch delays for the Satellite and other satellites owned by GE Americom or third parties. The Protection Satellite shall be used on a first-needed, first-restored basis. Unless the Protection Satellite has been used to restore a prior Satellite Failure, it may be moved in GE Americom's sole discretion to the orbital location of a satellite which has become a Satellite Failure, provided that it shall not be moved to a location which precludes fifty (50) state coverage. C. Satcom IR is GE Americom's existing in-orbit Protection Satellite as of the date of this Agreement. GE Americom shall launch Satcom C-1 as the replacement for Satcom IR prior to the end of life of Sitcom IR as determined by GE Americom's projections of remaining stationkeeping fuel. If Satcom IR becomes a Satellite Failure or is used to restore a Satellite Failure prior to its end of life, as determined by GE Americom's projections of remaining stationkeeping fuel, GE Americom shall launch C-1 as soon as possible. GE Americom shall have no obligation to provide Protection Satellites other than Satcom IR and C-1. D. All of CBN's right, title and interest in the Failed Transponder shall revert to GE Americom at the time CBN begins use of a Protection Transponder. Title to a -27- Protection Transponder on C-3 and C-4 shall pass to CBN upon CBN's commencing use of the Protection Transponder. Title to a Protection Transponder on the Protection Satellite shall remain with GE Americom, and CBN shall obtain only the rights expressly granted herein. [*] CONFIDENTIAL TREATMENT REQUESTED -28- ARTICLE 11. CONSTRUCTION DELAY PROTECTION - ------------------------------------------ A. In the event that the construction of a Satellite on which a Transponder has been assigned is delayed, such that it is not launched and operational prior to the time that the satellite on which CBN's service currently resides reaches end of life, GE Americom shall provide CBN, upon request, with Interim Transponder Service, which shall be on an [*] until such time as the Satellite has been launched and has become operational. Interim Transponder Service shall be provided only to the extent that the [*] other transponders that have been afforded construction and/or launch delay protection, launch failure protection or other protection as would prevent the restoration of CBN's Transponder; or has not become a Satellite Failure. B. In the event Interim Transponder Service is provided to CBN [*], in accordance with this Article 11, CBN shall pay to GE Americom a monthly rate of [*] per Transponder per month. C. To the maximum extent technically or operationally possible, consistent with the design specifications of the [*], a transponder on the [*] provided to CBN for Interim Satellite Service [*] CONFIDENTIAL TREATMENT REQUESTED -29- shall be of the same frequency, polarization and performance characteristics as CBN's Transponder on C-3 and/or C-4, provided that the odd-numbered transponders on the [*] shall be used first. [*] CONFIDENTIAL TREATMENT REQUESTED -30- ARTICLE 12. LAUNCH PROTECTION - ----------------------------- A. CBN shall have Launch Protection for launch vehicle delays or Launch Failure. In the event that the launch of a Satellite on which a Transponder has been assigned is delayed, or there is a Launch Failure, so that the Satellite is not operational prior to the end of life of the satellite on which CBN's service currently resides, GE Americom shall provide CBN with Interim Transponder Service on the [*] provided that the [*] other transponders that have been afforded construction and/or launch delay protection, launch failure protection or other protection as would prevent the restoration of CBN's Transponder; or has not become a Satellite Failure. If the [*] is not available for any of the just enumerated reasons, GE Americom shall offer to CBN and other similarly situated parties any unassigned or preemptible facilities on all other GE Americom C-band satellites on a first come, first served basis. CBN's price for such service shall be the lowest, then current price for comparable service on that satellite. B. In the event of a launch vehicle delay, service on the [*] shall be provided to CBN for a term not to extend beyond thirty (30) days after the [*] CONFIDENTIAL TREATMENT REQUESTED -31- Commercial Operational Date of the Satellite on which the Transponder has been assigned. The charges for the service actually used by CBN shall be at the rates provided for Interim Transponder Service under Article 11.B. C. In the event of a Launch Failure, service on the [*] shall be provided to CBN for a minimum period of twelve (12) months. If GE Americom permits any C-3 or C-4 customer to remain on the [*] for less than a minimum period of twelve (12) months, it shall afford the same right to CBN. CBN may cancel service by providing GE Americom with written notice at least six (6) months prior to the expiration of the minimum service period requesting such cancellation. The charges for the service actually used by CBN shall be at the rates provided for Interim Transponder Service under Article 11.B. If not canceled by CBN, service shall continue until the end of life of the [*] except that CBN may cancel such service by giving GE Americom at least six (6) months prior notice in writing, provided that GE Americom may on seven (7) months prior notice increase the monthly rate at the end of the first year and every twelve (12) months thereafter. The monthly rate shall not be increased by more than the annual compounded increase in the Consumer Price Index. In the event GE Americom has replaced C-3 [*] CONFIDENTIAL TREATMENT REQUESTED -32- and/or C-4 and CBN does not take service on such replacement satellite, the service to CBN on the [*] and the rate per transponder shall be [*] per month. D. To the maximum extent technically or operationally possible, consistent with the design specifications of the [*], a transponder on the [*] provided to CBN for Launch Protection shall be of the same frequency, polarization and performance characteristics as CBN's Transponder being replaced, provided that the odd-numbered transponders on the Protection Satellite shall be used first. E. GE Americom shall use all reasonable efforts to obtain launch insurance for the launch of C-l, C-3 and C-4 if such insurance is available on reasonable terms and conditions. Such insurance is intended to cover the cost of the satellite, launch and insurance. If any of these satellites become Launch Failures, GE Americom will apply any insurance proceeds towards providing a replacement satellite and promptly negotiate in good faith with the entities taking service or owning transponders on the Failed Satellite or using the Failed Satellite for Protection with the objective of retaining them as customers for a replacement satellite. GE Americom shall have no commitment to replace a failed satellite unless the negotiations are successful. [*] CONFIDENTIAL TREATMENT REQUESTED -33- ARTICLE l3. RESTORED SATELLITE SERVICE OPTION - ---------------------------------------------- A. In the event a Satellite on which a Transponder has been assigned becomes a Satellite Failure, Fully Protected Transponders shall be restored on the [*] to the extent that the [*] or other transponders that have been afforded construction and/or launch delay protection, launch failure protection or other protection as would prevent the restoration of CBN'S Transponder; or has not become a Satellite failure. In the event the [*] is not available to CBN, GE Americom shall use all reasonable efforts to provide alternative C-band capacity to CBN at the lowest then current rate for comparable service. B. Restored Satellite Service provided as a result of Satellite Failure shall be provided to CBN for a minimum period of eighteen (18) months. CBN may cancel service by providing GE Americom with written notice at least six (6) months prior to the expiration of the minimum service period requesting such cancellation. The charges for the service actually used CBN shall be at the rates provided for Interim Transponder Service under Article 11.B. If not canceled by CBN service shall continue [*] CONFIDENTIAL TREATMENT REQUESTED -34- until the end of life of the [*] except that CBN may cancel such service by giving GE Americom six (6) months prior notice in writing. GE Americom may increase the monthly rate as provided in Article 12.C. C. In the event that any of CBN's Transponders become Transponder Failures, other than as part of a Satellite Failure, and cannot be restored as provided in Article 10.A.l., service on such Failed Transponder shall, at CBN's option, be restored on the [*] on a first-failed, first-restored basis if capacity thereon is available, [*] has not restored such number of prior Transponder Failures or other transponders that have been afforded construction and/or launch delay protection, launch failure protection or other protection as would prevent the restoration of CBN's Transponder; or has not become a Satellite Failure). Restored Satellite Service for the Failed Transponder shall be provided on the terms and at the charges provided under Paragraph B of this Article 13. D. In the event that the transponders of the [*] become Transponder Failures such that the transponders are restored on the [*] CBN shall have the right, subject to the availability of facilities, to have its Transponder restored on the [*] CONFIDENTIAL TREATMENT REQUESTED -35- [*] if CBN determines that it is technically or operationally required for the CBN Transponder to be provided on the same satellite as the transponders of the [*]. Service to CBN on the [*] shall be on a [*]. The monthly rate per transponder for this service shall be [*]. Preemption from the [*] shall be on the basis of the [*]. With respect to those parties that have been restored to the [*] pursuant to the provisions of this Article 18.D., the order of preemption from the [*] shall be in the reverse order of restoration to the Preemptible Transponders pursuant to Article 1.N., i.e. last to sign a definitive agreement, first off. During the period that CBN has been restored to the [*], GE Americom may use CBN'S Transponder, without charge, to provide service to other customers. E. To the maximum extent technically or operationally possible, consistent with the design specifications of the Protection Satellite, a transponder on the [*] [*] CONFIDENTIAL TREATMENT REQUESTED -36- [*] provided to CBN for Restored Satellite Service shall be of the same frequency polarization and performance characteristics as CBN's Transponder being replaced, provided that the odd-numbered transponders on the Protection Satellite shall be used first. F. Except as otherwise provided in this Article 13, restored Satellite Service is provided on [*]. In the event GE Americom has replaced C-3 and/or C-4, the service to CBN on the [*] and the rate per transponder shall be [*] per month. -37- ARTICLE 14. SATELLITE SYSTEM AND AUTHORIZATIONS - ------------------------------------------------ A. GE Americom shall have sole and exclusive control and operation of C-3 and C-4. If circumstances occur which pose a threat to the stable operation of a Satellite on which a Transponder has been assigned, GE Americom shall have the unqualified right to take appropriate action to protect the Satellite, including discontinuance or suspension of operation of the Satellite, the Transponder or any other transponder, without any liability to CBN, except as expressly provided in this Agreement. GE Americom shall give CBN as much notice as possible of any such discontinuance or suspension. B. If it becomes necessary under this Article to discontinue or suspend operation on one or more transponders on C-3 and/or C-4 or on the Protection Satellite if CBN is then taking service on that Satellite, and operational circumstances allow GE Americom to select the transponder or transponders to be discontinued or suspended, GE Americom will use reasonable efforts to make such selection in the reverse order of the dates on which agreements were entered into with GE Americom as specified in Article 1.P., i.e. "last-on, first-off". C. Construction, launch, location and operation of the Satellites and GE Americom's satellite system are subject to all applicable laws and regulations, including without limitation, the Communications Act of 1934, as amended, -38- and the Rules and Regulations of the FCC. Both parties shall comply with all such applicable laws and regulations. D. GE Americom may, upon one (1) business days notice to CBN, make such reasonable non-intrusive tests and inspections of CBN's facilities accessing or operating in conjunction with the Transponders as may be necessary to maintain the satellites, the Transponders or GE Americom's other facilities used in connection therewith, in satisfactory operating condition. -39- ARTICLE 15. OPERATING PROCEDURES - -------------------------------- A. CBN agrees to abide by and adhere to the Spacecraft Service Requirements and procedures set forth in Attachment B of this Agreement as such may be reasonably amended from time-to-time upon written notice to CBN. In the event of any material failure of CBN to comply with such operating procedures, and if such failure interferes with GE Americom's other satellite services, or with the use of other transponders, CBN agrees to discontinue such interfering operation immediately upon discovery at receiving notice from GE Americom of the interference. In the event of CBN's failure to discontinue, GE Americom may take such action reasonable and necessary in the circumstances to eliminate such interference, including suspending CBN's use of the Transponders, without any liability for loss or damage whatsoever, until such time as CBN is able to operate in a non-interfering manner. B. When signals are being transmitted from a CBN-provided Earth Station, CBN shall be responsible for proper illumination of the Transponders. Should improper illumination be detected by GE Americom, CBN will be notified of this and corrective action must be taken immediately. C. An Earth Station and other equipment furnished by CBN shall be so constructed, maintained and operated as to work properly with GE Americom's facilities and GE -40- Americom acknowledges that CBN's existing Earth Station works properly with GE Americom's facilities. CBN shall provide, at its expense, the personnel, power and space required to operate all facilities installed on the premises of CBN. CBN shall ensure the control of its transmitter by a qualified technician and shall, at all times when signals are being transmitted from its Earth Stations to the Satellite or Transponders, have the ability to terminate transmissions upon ten minutes notice. CBN at its expense shall provide GE Americom with necessary equipment for signal monitoring including but not limited to descrambling or decoding devices. D. When a CBN-provided Earth Station is to access the Satellite or the Transponders, GE Americom will provide CBN with the Satellite access specifications prior to access if these are different from those in Attachment B. CBN agrees to conform its uplink Earth Station transmissions to the reasonable specifications set forth by GE Americom. In addition, at a mutually agreed to time, and prior to transmitting from a CBN-provided Earth Station after initial commencement of service and after any period of non-use, CBN must contact GE Americom's Vernon Valley, New Jersey communications technician and demonstrate CBN's ability to perform in accordance with the access specifications. -41- ARTICLE 16. TRANSITION TO C-3 AND C-4 - -------------------------------------- A. To ensure the efficient and orderly transfer of service from the Satellite(s) on which CBN's service(s) currently reside(s) to C-3 and C-4, a Technical Committee will be forMed by GE Americom and all C-3 and C-4 customers who elect to participate for the purpose of discussing and resolving matters relating thereto as well as other technical operating matters which may arise. B. The matters to be covered and the composition of the Technical Committee shall be determined from time-to-time by mutual agreement of the Parties. C. GE Americom agrees to provide CBN with periodic progress reports, no less frequent than every six (6) months, on the status of the Satellites on which the Transponders have been assigned and to give CBN as much advance notice as possible but no less than thirty (30) days of the probable and scheduled Commercial Operational Date of those Satellites. -42- ARTICLE 17. INDEMNIFICATION - --------------------------- A. CBN shall indemnify and hold GE Americom, its officers, employees, agents and representatives, or any of them, harmless from any loss, damage, liability or expense, for damage to tangible personal property and injuries and death to persons, including, but not limited to, employees of both Parties, arising from any negligent or intentional act or omission of CBN in connection with this Agreement. B. GE Americom shall indemnify and hold CBN, its officers, employees, agents and representatives, or any of them, harmless from any loss, damage, liability or expense, for damage to tangible personal property (other than the Satellites, the Transponders, or GE Americom's other satellites, transponders, facilities or equipment) and injuries and death to persons, including, but not limited to, employees of both Parties, arising from any negligent or intentional act or omission of GE Americom in connection with this Agreement. This Article 17.B. shall not effect GE Americom's obligations under Article 7. C. Because CBN has control of the content of the communications transmitted over the Transponders, after passage of title, and during any period CBN may have access to the Transponders prior to passage of title, GE Americom shall be indemnified and saved harmless by CBN from and against all loss, liability, damage and expense, including reasonable counsel fees, due to: -43- 1. Claims for libel, slander, infringement of copyright or other intellectual property rights arising from the material transmitted over the Transponders by CBN, by its customers or by any third party authorized to use the Transponders by CBN; and 2. Any other claim relating to the use of the Transponders resulting from any act or omission of CBN or of customers of CBN or of any third party authorized to use the Transponders by CBN. If for any reason GE Americom has obtained control over the content of the communication transmitted over the Transponder, it shall indemnify and hold CBN harmless against the claims specified in 1. and 2. above. GE Americom agrees that CBN, at its sole option, shall be relieved of the foregoing obligations unless GE Americom notifies CBN promptly in writing of any such claim, suit or proceeding of which GE Americom has knowledge or should have knowledge, and at CBN's expense, gives CBN proper and full information and assistance to settle and/or to defend any such claim, suit or proceeding. D. The indemnifying Party (the "indemnitor") shall promptly defend any claims against the indemnified Party (the "indemnitee") with counsel of the indemnitor's choosing at its own cost and expense. The indemnitee shall cooperate with, and assist as requested by, the indemnitor in the defense of any such claim, including the -44- settlement thereof on a basis stipulated by the indemnitor (with the indemnitor being responsible for all costs and expenses of defending such claim or making such settlement), provided, however, that the indemnitor will not, without the indemnitee's consent (which shall not be unreasonably withheld or delayed), settle or compromise any claim or consent to any entry of judgment which does not include the giving by the claimant or the plaintiff to the indemnitee of an unconditional release from all liability with respect to such claim to the extent that such claim is within the scope of this Article 17. -45- ARTICLE 18. PATENT INDEMNITY - ----------------------------- A. CBN agrees that GE Americom has the right to defend, or At its option to settle, and GE Americom agrees, at its own expense, to defend or at its option to settle, any claim, suit or proceeding brought against CBN on the issue of infringement of any United States or foreign patent and any tradename, trademark or trade secret by any product, or any part thereof, supplied by GE Americom to CBN under this Agreement. GE Americom agrees to pay, subject to the limitations hereinafter set forth in this Article 18, any final judgment entered against CBN on such issue in any such suit or proceeding defended by GE Americom. CBN agrees that GE Americom, at its sole option, shall be relieved of the foregoing obligations unless CBN notifies GE Americom promptly in writing of any such claim, suit or proceeding of which CBN has knowledge or should have knowledge, and at GE Americom's expense, gives GE Americom proper and full information and assistance to settle and/or to defend any such claim, suit or proceeding. B. If the product, or any part thereof, furnished by GE Americom to CBN becomes, or in the opinion of GE Americom may become, the subject of any claim, suit or proceeding for infringement of any United States or foreign patent, or in the event of an adjudication that such product or part infringes any United States or foreign patent, or if the use, lease or sale of such product or part is -46- enjoined, GE Americom shall, at its option and its expense: (1) procure for CBN the right under such patent to use, lease or sell, as appropriate, such product or part, or (2) replace such product or part, or (3) modify such product or part, or (4) remove such product or part and refund payments pursuant to CBN's Full Warranty hereunder if such removal results in the unavailability of CBN's Transponder(s). GE Americom agrees to use all reasonable efforts to accomplish (1), (2) or (3), above, prior to removing the product or part and refunding the payments as specified in (4), above. C. GE Americom shall have no liability for any infringement arising from: (i) the combination of such product or part with any other product or part whether or not furnished to CBN by GE Americom or (ii) the modification of such product or part unless such modification was made by GE Americom or its subcontractors, or (iii) the use of such product or part in practicing any process other than the usage prescribed herein. D. CBN shall hold GE Americom harmless against any expense, judgment or loss for infringement of any United States or foreign patents or trademarks which result from GE Americom's compliance with CBN designs, specifications or instructions. GE Americom shall not be liable for any costs or expense incurred without GE Americom's written -47- authorization and in no event shall GE Americom's total liability to CBN under, or as a result of compliance with, the provisions of this Article exceed the aggregate sum paid to GE Americom by CBN exclusive of any refund under option (4) in Article 18.B. above. GE Americom shall in no event be liable for loss of use or for incidental, indirect, or consequential damages whether in contract or in tort. E. The foregoing states the entire warranty by GE Americom and the exclusive remedy of CBN, with respect to any alleged patent infringement by such product or part. F. No sale, lease, or use hereunder shall convey any license by implication, estoppel or, otherwise; under any proprietary or patent rights of GE Americom to practice any process with such product or part, or for the combination of such product or part with any other product or part. -48- ARTICLE 19. LIMITATION OF LIABILITY - ------------------------------------ A. The remedies of each Party set forth in this Agreement are exclusive, and neither Party shall have any other liability to the other for damages or losses arising out of mistakes, omissions, interruptions, delays, errors or defects of syn kind with respect to this Agreement, or the use of the Satellites, the Transponders, or other satellites, transponders, facilities, services or equipment furnished by GE Americom, including but not limited to TT&C facilities or services, or anything done in connection therewith, whether arising out of statute, contract, negligence, strict liability in tort, or under any warranty, or otherwise. B. Except as expressly provided in this Agreement, GE Americom shall have no liability for damages or losses arising out of its failure or inability to provide the Satellites, the Transponders, or other satellites, transponders, facilities, services and equipment in accordance with this Agreement, regardless of whether occasioned by GE Americom's negligence. C. Neither Party shall in any event be liable, in connection with this Agreement or the arrangements contemplated hereby, for any indirect, incidental, consequential, special or other similar damages, whether in contract or tort, including but not limited to damages resulting from loss of actual or anticipated revenues or profits, or loss of business, customers or good will. -49- D. GE Americom shall not be liable for any act or omission of any other entity furnishing satellites, transponders, facilities, services or equipment to CBN which may be used in conjunction with the Satellites or the Transponders, or GE Americom's other satellites, transponders, facilities, services or equipment; nor shall either Party be liable for any damages or losses due to the fault or negligence of the other Party or of any third party except to the extent that the performance of the other party or the third party is taken at the direction of or under the supervision of the first party. E. The Satellites, the Transponders and GE Americom's other satellites, transponders, facilities, services or equipment shall not be used for an unlawful purpose. F. It is agreed and understood that the price paid by CBN for the Transponders sold by GE Americom is a consideration in limiting GE Americom's liability. -50- ARTICLE 20. FORCE MAJEURE - ------------------------- A. Neither party shall be liable to the other for any failure of or delay in performance hereunder due to causes beyond its reasonable control. These causes include but are not limited to: acts of God; fire, flood or other natural catastrophes; the need to comply with any law or any rule, order, regulation or direction of the United States Government, or of any other government, including state and local governments having jurisdiction over either party, or of any department, agency, commission, bureau, court or other instrumentality thereof, or of any civil or military authority; national emergencies; insurrections; riots; acts of war; quarantine restrictions; embargoes; or strikes, lockouts, work stoppages or other labor difficulties. This Article 20.A. shall not Affect GE Americom's obligations under Article 7. B. The parties recognize that authority to construct, launch, position and operate the Satellites on which the Transponders have been assigned will be needed from the FCC and that GE Americom's ability to perform is subject to the receipt of such FCC authority. GE Americom will proceed in good faith and use all reasonable efforts to obtain on a timely basis and continue in effect all FCC and other governmental and regulatory authorizations, -51- approvals, licenses and permits which it requires to meet its obligations hereunder, and has no reason to believe that it will not obtain all such authorizations, approvals, licenses and permits in accordance with its operational schedule. If, however, GE Americom is unable to provide CBN with a Transponder as a result of its failure to obtain such authority, GE Americom shall refund to CBN all payments made prior to the Commercial Operation Date. Such refund shall include interest from the date of payment(s) to the date of refund at the prime rate plus one (1%) percent. -52- ARTICLE 21. CONFIDENTIALITY AND NONDISCLOSURE - ---------------------------------------------- A. CBN shall hold in strict confidence and not disclose to third parties any and all information contained in this Agreement and any information marked proprietary in accordance with C. below, without the prior written consent of GE Americom which shall not be unreasonably withheld. GE Americom shall hold in strict confidence and not disclose to third parties any and all information contained in this Agreement and any information marked proprietary in accordance with C. below, without the prior written consent of CBN which shall not be unreasonably withheld. This restriction on disclosure to third parties shall apply to each party and to its parent, subsidiaries and affiliates (including their respective employees, agents, representatives, independent auditors, prospective lenders or legal counsel) unless such parent, subsidiary or affiliate agrees in writing to hold the information provided pursuant to this Agreement confidential in accordance with the terms of this Article. B. CBN hereby acknowledges that all information provided to CBN related to the design and performance characteristics of the Satellites, and any subsystems or components thereof including the Transponders, is confidential and proprietary and is not to be disclosed to third persons, without the prior written consent of GE Americom. -53- C. To the extent that either Party discloses to the other any other information which it considers proprietary said Party shall identify such information as proprietary when disclosing it to the other Party by marking it clearly and conspicuously as proprietary information. Any proprietary disclosure to either Party, if made orally, shall be promptly confirmed in writing and identified as proprietary information, if the disclosing Party wishes to keep such information proprietary under this Agreement. Any such information disclosed under this Agreement shall be used by the recipient thereof only in its performance under this Agreement. Neither Party shall be liable for disclosure or use of such information marked as proprietary information as provided above which: 1. is or becomes available to the public from a source other than the receiving Party before, during or after the period of this Agreement; 2. is released without restrictions in writing by the disclosing Party; 3. is lawfully obtained by the receiving Party from a third party or parties; 4. is known by the receiving Party prior to such disclosure; or 5. is at any time developed by the receiving Party completely independently of any such disclosure or disclosures from the disclosing Party. -54- D. Neither Party shall be liable for the inadvertent or accidental disclosure of such information marked as proprietary, if such disclosure occurs despite the exercising of the same degree of care as the receiving Party normally takes to preserve and safeguard its own proprietary information. E. Neither Party shall be liable for the disclosure of any information which it receives under this Agreement pursuant to judicial action or decree, or pursuant to any requirement of any Government or any agency or department thereof, having jurisdiction over such Party, provided that such Party shall have received a written opinion of counsel that such disclosure is required, and provided further that such Party shall have given the other Party notice prior to such disclosure. F. No license to the other Party, under any patents, is granted or implied by conveying proprietary information or other information to that Party and none of such information which may be transmitted or exchanged by the respective Parties shall constitute any representation, warranty, assurance, guaranty, or inducement by either Party to the other with respect to the infringement of patents or other rights of others. G. Neither Party shall issue a public notice or a news release concerning this Agreement and the transactions contemplated hereby without the prior approval of the -55- other, which approval shall include the right to approve the form, content and timing of any such release, which approval shall not unreasonably be withheld. -56- ARTICLE 22. REPRESENTATIONS AND COVENANTS - ------------------------------------------ A. GE Americom represents and covenants to CBN as follows: 1. The execution, delivery and performance of this Agreement do not and will not as of the date of transfer of title to the Transponders to CBN violate any provision of the Certificate of Incorporation or Bylaws of GE Americom, any provision of any material agreement to which GE Americom is a party or by which GE Americom is bound, or any statute or law, or any writ, judgment, decree, order, regulation, or rule of any court or governmental authority to which GE Americom is a party or which is applicable to GE Americom. 2. No consent, order, permit or other authorization, approval, or similar action is required from any governmental authority, agency or court, other than the FCC, for GE Americom to execute and deliver this Agreement, and to perform its obligations under this Agreement or to perform the transactions contemplated herein. 3. As of the date of transfer of title to CBN, GE Americom will have and CBN will acquire good and marketable title to the Transponders free and clear of all liens, encumbrances, pledges and security interests. -57- 4. GE Americom is in compliance in all respects with all applicable laws, ordinances, regulations, rules and governmental orders, a violation of which would have a material adverse effect on its ability to perform its obligations under this Agreement. 5. GE Americom has (1) obtained corporate approval for construction, launch (in 1991), and operation of C-1 (Protection Satellite) which is under construction; (2) been granted corporate approval for and executed a launch vehicle services contract with Arianespace for C-l, C-3, and C-4; and (3) has obtained corpsEate approval to proceed with construction of C-3 and C-4 upon the achievement of certain sales milestones. GE Americom will advise CBN when such milestones have been achieved. 6. The representations contained in this Article 22.A. will be true and correct as of the date of transfer of title to the Transponders to CBN. B. CBN represents and covenants to GE Americom as follows: 1. The execution, delivery and performance of this Agreement do not and will not as of the date of transfer of title to the Transponders to CBN violate any provision of the Certificate of Incorporation or Bylaws of CBN, any provision of any material agreement to which CBN is a party or by which CBN is bound, or any statute or law, or any writ, judgment, decree, order, regulation, or rule of [*] CONFIDENTIAL TREATMENT REQUESTED -58- any court or governmental authority to which CBN is a party or which is applicable to CBN. 2. CBN is in compliance in all material respects with all applicable laws, ordinances, regulations, rules and governmental orders, a material violation of which would have a material adverse effect on its ability to perform its obligations under this Agreement. 3. The execution, delivery and performance of this Agreement have been duly and validly authorized by all necessary action on the part of CBN. CBN has or will have available to it sufficient funding to meet its financial commitments under this Agreement and will use all reasonable efforts to arrange for such funding. If by December 31, 1989, however, CBN has been unable to arrange sufficient funding, it shall be permitted to change this Agreement from a purchase to a service agreement at a flat rate not to exceed [*] per month per Transponder for an end-of-life term or a grow-with rate commencing at [*] per month per Transponder for the first year of service, and increasing at [*]/month annually thereafter for an end-of-life term, provided that CBN also pays a total of [*] per Transponder for Launch and Construction Delay Protection no later than December 31, 1990. (For this purpose, the [*] paid in 1989 shall be applied towards CBN's first months' payments for -59- service.) Both of the above monthly rates for service include Full Protectionand TT&C Services. 4. The representations contained in this Article 22.B. will be true and correct as of the date of transfer of title to the Transponders to CBN. -60- ARTICLE 23. NOTICES - -------------------- A. Notice of Outages or other technical or operational matters requiring immediate attention may be given by telephone. GE Americom will designate a point oR points of contact where CBN may call on a 7 day-a-Week, 24 hour-a-day basis. Any notice given verbally will be confirmed in writing as soon as practicable thereafter pursuant to the procedures set out in Article 23.B. B. Except as otherwise provided in Article 23.A, all necessary notices, demands, reports, orders and requests required hereunder to be given by one Party to the other shall be in writing and deemed to be duly given on the same business day if sent by electronic means (i.e., telex, electronic mail or facsimile) or delivered by hand during the receiving Party's regular business hours, or on the date of receipt if sent by pre-paid overnight, registered or certified mail, and addressed as follows: If to be given to CBN: President The Christian Broadcasting Network, Inc. CBN Center 1000 Centerville Turnpike Virginia Beach, VA 23463 With a copy to: Office of General Counsel The Christian Broadcasting Network, Inc. CBN Center 1000 Centerville Turnpike Virginia Beach, VA 23463 -61- And with a copy to: Manager of Satellite Communications The Christian Broadcasting Network, Inc. CBN Center 1000 Centerville Turnpike Virginia Beach, VA 23463 If to be given to GE Americom: Vice President, Cable Services GE Americom Communications, Inc. Four Research Way Princeton, NJ 08540-6684 Fax No. 609-9B7-4517 C. Each Party may, on written notice to the other, specify another address or individual to serve as a point of contact for that Party. -62- ARTICLE 24. TERMINATION - ------------------------ A. Either Party may terminate this Agreement within ninety (90) days after it acquires knowledge of on event listed below and upon ten (l0) days' prior written notice of intent to terminate to the other Party: 1. If the FCC denies or cancels any authorization, approval, license or permit required to construct, launch, position or operate the Satellites, or to transfer the interests in CBN's Transponders proposed to be conveyed hereunder on the terms and conditions contained in this Agreement, and, after using all reasonable efforts, GE Americom is unable to obtain relief from the FCC's action enabling performance of GE Americom's obligations hereunder within one hundred twenty (120) days of the FCC's action becoming administratively final and not subject to further FCC review. 2. If the other Party becomes insolvent or any insolvency proceedings involving the other Party are commenced including, without limitation, if the other Party shall be judicially declared bankrupt or insolvent according to law, or if any assignment shall be made of the property of the other Party for the benefit of creditors, or if a receiver, conservator, trustee in bankruptcy or other similar officers shall be appointed to take charge of all or any substantial part of the other Party's property by a court of competent jurisdiction, or -63- if a petition shall be filed for the reorganization of the other Party under any provisions of the Bankruptcy Act now or hereafter enacted, and such proceeding is not dismissed within one hundred twenty (120) days after it is begun, or if the other Party shall file a petition for such reorganization or for an arrangement under any provisions of the Bankruptcy Act now or hereafter enacted and providing a plan for a debtor to settle, satisfy or extend the time for the payment of debts. With respect to CBN, the above shall apply only prior to the payment in full of its purchase price hereunder, provided no other payments to GE Americom are due pursuant to alternate elections by CBN for ongoing services, and only in the absence of adequate assurances of future payment. B. CBN may terminate this Agreement within ninety (90) days after CBN acquires knowledge of an event listed below and upon ten (10) days' prior written notice of intent to terminate to GE Americom: 1. If either or both of CBN's Transponders provided under this Agreement do not meet in all material respects the Transponder Performance Specifications set forth in Attachment A on the Commercial Operational Date of C-3 or C-4, as appropriate. 2. If one of the CBN Transponders is not made available to CBN or does not meet in all material respects the Transponder Performance Specifications on the [*] CONFIDENTIAL TREATMENT REQUESTED -64- Commercial Operational Date CBN may terminate as to that Transponder. In the event CBN terminates under this Article B.2., this Agreement shall remain in full force and effect as to any other Transponder which is provided to CBN hereunder and which meets the Transponder Performance Specifications in all material respects. 3. If before the date of the launch of C-3 and/or C-4 the [*] terminates its agreement for purchase of transponders on C-3 and/or C-4 provided that CBN's right to terminate shall apply only to the satellites) for which the Viacom Group so terminates. 4. If C-3 or C-4 is assigned to an orbital location from which 50 state coverage is not possible; provided that CBN's right to terminate shall apply only to the satellite which is so assigned unless the [*] terminates its agreement as to the other satellite for this reason, in which case CBN may terminate this Agreement in its entirety. C. GE Americom may terminate this Agreement within ninety (90) days after GE Americom acquires knowledge of an event listed below and upon ten (10) days' prior written notice of intent to terminate to CBN: 1. If the [*] terminates its agreement for purchase of transponders on C-3 and/or C-4 before December 31, 1989, provided that GE Americom's right to terminate shall apply only to the satellite(s) for which the [*] so terminates. -65- 2. If on the Commercial Operational Date, less than twelve (12) on each of C-3 and C-4 Transponders meet the Transponder Performance Specifications in Attachment A. 3. If CBN defaults in making any of the payments due to GE Americom under Article 3.A. and does not cure such default within ninety (90) days of the date specified for such payment, or if CBN defaults in making any other payment due to GE Americom and does not cure such default within one-hundred-eighty (180) days of the date specified for such payment. D. In the event of termination by either party due to causes specified in Article 24.A.1., prior to the Commercial Operational Dates of the Satellites on which CBN's Transponders reside; by CBN due to causes specified in Article 24.A.2. prior to the commercial Operational Dates of the Satellites on which CBN's Transponders reside, or 24.B.1; and by GE Americom due to causes specified in Article 24.C.1. or 24.C.2., GE Americom shall refund in full CBN's payments made under Article 3. If after the Commercial Operational Dates of the Satellites either Party should terminate due to causes specified in Article 24.A.1., or if CBN terminates due to causes specified in Article 24.A.2., GE Americom shall refund a pro rata portion of CBN's purchase price for any purchased Transponder based upon the ratio between the period CBN had use of the Transponder and the projected life of the Satellite on which the Transponder resides. -66- E. In the event of termination by CBN due to causes specified in Article 24.B.2., 24.B.3., or 24.B.4., GE Americom shall refund CBN's payments made under Article 3 with respect to that Transponder which is the subject of the termination. F. In the event CBN terminates for reasons other than those for which termination by CBN is provided under this Agreement, or in the event of termination by GE Americom due to causes specified in Article 24.A.2., or 24.C.3 GE Americom shall be entitled to reclaim the Transponders. If the Agreement is terminated for the reasons provided in this Article 24.F., GE Americom shall be entitled to retain CBN's payments made under Article 3. as liquidated damages until GE Americom is able to resell or otherwise dispose of the CBN Transponder. Upon receipt of the proceeds of such resale or other disposal, GE Americom will refund to CBN its payments under Article 3. up to the amount realized by GE Americom from such resale or other disposal. Any amount realized by GE Americom in excess of CBN's payments shall inure to GE Americom. GE Americom will make a good-faith effort to resell or offer service on CBN's Transponders at a price no less than the price to CBN hereunder, but shall not be required to set any minimum price in connection with such resale or offer of service. -67- G. The payment of a refund to CBN under this Article 24, where such a refund is provided, shall be CBN's sole and exclusive remedy under this Agreement. H. The termination of this Agreement will not relieve either Party from fulfilling any outstanding financial obligations to the other, or constitute a waiver by either Party of any other rights and remedies it may have against the other under this Agreement. -68- ARTICLE 25. SUCCESSOR SATELLITES - -------------------------------- A. In the event that GE Americom elects to construct, launch and operate a C- band satellite to replace C-3 and C-4 when the satellite reaches its EOL ("Successor Satellite"), CBN, its successors or assigns will have the option to acquire, by purchase or service agreement, a quantity of transponders on this Successor Satellite that is equal to that being acquired under this Agreement on C-3 and C-4 through its EOL, provided CBN its successors or assigns, uses these transponders for outbound audio and/or video feeds of a national programming service (with such usage restriction void unless it applies to all others with such option) and at terms and conditions then prevailing, to be negotiated by the parties in good faith. B. If CBN desires to exercise the option to acquire transponders on the Successor Satellite, it shall notify GE Americom no later than forty-eight (48) months prior to the respective EOL of C-3 and/or C-4. GE Americom shall give CBN no more than ninety (90) and not less than sixty (60) days prior notice of said forty-eight (48) month period. The parties shall then negotiate in good faith for 90 days to reach agreement on the price, terms and conditions of the sale. Failure of GE Americom to give such notice shall constitute a waiver of the notification period requirement, and CBN sha11 have ninety (90) days to negotiate the terms of an agreement from whenever GE -69- Americom gives such notice. If agreement is not reached by the end of that period, neither party shall have any obligation to the other with respect to Successor Satellites. C. If GE Americom enters into an agreement for the sale of the same number or fewer transponders as purchssed by CBN on a Successor Satellite on prices, terms, and conditions, taken as a whole, which are more favorable than those in any agreement GE Americom may enter into with CBN for sale of transponders on a Successor Satellite, then GE Americom shall offer such more favorable agreement to CBN in lieu of the agreement with CBN. CBN shall have thirty (30) days from GE Americom's offer to accept or reject the substitute agreement. This Article 25.C. shall not apply to any agreement entered into with any of the companies listed in Article 1.P. or Turner Broadcasting System, Inc. This Article 25.C. shall not apply after launch of a Successor Satellite. D. If GE Americom, its successor, or assigns, does not elect to construct, launch and operate a Successor Satellite, its obligation to offer CBN options on transponders on such a Successor Satellite shall be terminated. E. Provided others with such an option for successor satellite services are so restricted, CBN will not be eligible to acquire Transponders on a Successor Satellite -70- on the above terms if, before exercising the option referred to in this Article 25, it has (1) ceased to distribute national cable programming services; or (2) sold such programming services other than to permitted successor or assigns. -71- ARTICLE 26. MOST FAVORED NATIONS - --------------------------------- If GE Americom enters into or has entered into an agreement for the sale of the same number or fewer transponders as purchased by CBN_on C-3 or C-4 on prices, terms and conditions, taken as whole, which are more favorable than those in this Agreement, then GE Americom shall offer such most favorable agreement to CBN in lieu of this Agreement. CBN shall have thirty (30) days from GE Americom's offer to accept or reject the substitute agreement. This Article shall not apply to any agreement entered into with any of the companies listed in Article l.P. or Turner Broadcasting System, Inc. This Article shall not apply to the Transponder on C-3 after the launch of C-3 and shall not apply to the Transponder on C-4 after the launch of C-4. -72- ARTICLE 27. GENERAL PROVISIONS - ------------------------------- A. Not Fiduciaries. Nothing contained in this Agreement shall be deemed or ---------------- construed by the Parties or by any third party to create any rights, obligations or interests in third parties; or to create the relationship of principal and agent, partnership or joint venture or any other fiduciary relationship or association between the Parties. B. Waivers, Defaults and Remedies. No failure on the part of either Party to ------------------------------- notify the other Party of any noncompliance hereunder, and no failure on the part of either Party to exercise its rights hereunder shall prejudice any remedy for any subsequent noncompliance, and any waiver by either Party of any breach or noncompliance with any term or condition of this Agreement shall be limited to the particular instance and shall not operate or be deemed to waive any future breaches or noncompliance with any term or condition. All remedies and rights hereunder and those available in law, in equity, under the Communications Act of 1934 or the Rules and Regulations of the FCC shall be cumulative, and the exercise by a Party of any such right or remedy shall not preclude the exercise of any other right or remedy available under this Agreement in law or in equity. C. Construction and Jurisdiction. This Agreement shall be construed and ------------------------------ enforced in accordance with the substantive laws of the State of New York. -73- D. Headings. All headings in this Agreement are inserted as a matter of -------- convenience and for reference purposes only, are of no binding effect, and in no respect define, limit or describe the scope of this Agreement or the intent of any article, paragraph or subparagraph hereof. E. Attachments. All attachments attached to this Agreement shall be deemed ----------- part of this Agreement and incorporated herein as if fully set forth herein, and in the event of a variation or inconsistency between the text of this Agreement and the Attachments attached hereto, this Agreement shall govern. F. Counterparts. This Agreement may be signed in any number of counterparts ------------ with the same effect as if the signatures to each were upon the same Agreement. G. Singular and Plural. Where appropriate, the use of the plural word shall ------------------- include its singular and the use of the singular word shall include its plural. H. Expenses. Unless specifically provided otherwise herein, each party shall -------- bear its respective costs and expenses in connection with the preparation, execution, delivery and performance of this Agreement. I. Entire Agreement. This Agreement, including all attachments, represents the ---------------- entire understanding and agreement between the Parties with respect to the subject matter hereof, supersedes all prior negotiations and -74- Agreements between the parties concerning that subject matter, and CBN be amended, supplemented or changed only by an agreement in writing which makes specific reference to this Agreement and which is signed by both Parties. J. Ambiguities. This Agreement and the Exhibits hereto have been drafted ------------ jointly by the Parties and in the event of any ambiguities in the language hereof, there shall be no inference drawn in favor of either Party. -75- IN WITNESS WHEREOF, the parties hereto have executed this Agreement, effective on the date first above written. GE AMERICAN COMMUNICATIONS, INC. By: /s/ Martin C. Lafferty ----------------------------- Name: Title: VP, Cable Services THE CHRISTIAN BROADCASTING NETWORK, INC. By: /s/ Timothy B. Robertson ------------------------------ Name: Title: President EX-10.57 14 AMENDMENT NO. 1 TO TRANSPONDER SALES AGREEMENT EXHIBIT 10.57 C-3/C-4 SATELLITE TRANSPONDER SALES AGREEMENT --------------------------------------------- AMENDMENT NUMBER ONE -------------------- This Amendment, made and entered into this 15th day of December 1989, by and between GE American Communications, Inc. (GE Americom) and The Christian Broadcasting Network, Inc. (CBN). WITNESSETH WHEREAS, GE Americom has entered into an agreement with Arianespace for launch of the C-3 and C-4 satellites; and WHEREAS, that agreement with Arianespace requires that GE Americom obtain from purchasers of C-3 or C-4 transponders certain indemnifications and waivers of liability; and WHEREAS, GE Americom and CBN have entered into a C-3/C-4 Satellite Transponder Sales Agreement dated July 7, 1989 (the "Agreement") which does not contain the required provisions; and WHEREAS, the parties therefore desire to amend the Agreement; NOW, THEREFORE, in consideration of the foregoing, and for other good and valuable consideration, the receipt and sufficiency of which is acknowledged by the parties, the parties, intending to be legally bound, hereby agree as follows: 1. Article 19. Limitation of Liability ----------------------------------- Add the following: G. CBN shall have no right of action against Arianespace, other customers of Arianespace* ("third party customers") or their respective associates, for damages for bodily harm and damage to property suffered by CBN resulting from the performance of the Ariane launch services agreement for the Satellite by such named parties. CBN further irrevocably agrees to a no-fault, no-subrogation waiver of liability and waives the right to make any claims or to instigate any judicial proceedings in connection with such claims against Arianespace, the third party customers of Arianespace or their associates. In the event that one or more associates of CBN shall proceed against Arianespace, the third party customers or their associates as a result of bodily harm or property _________________ * other than GE Americom pursuant to Agreement damage caused by Arianespace, the third party customers or their associates resulting from the performance of the Ariane launch services agreement by such named parties, CBN shall indemnify, hold harmless, dispose of any such claim and defend when not contrary to the governing rules of procedures where the action takes place, Arianespace, such third party customers and their associates from any loss, damage, liability or expense, including attorney's fees, on account of such damage or injury, and shall pay all expenses and satisfy all judgments which may be incurred by or rendered against said indemnitees. As used herein, the term "associates" means individuals or legal entities which act, directly or indirectly, on behalf of or at the direction of an entity to fulfill the obligations of that entity, including the entity's employees, suppliers and subcontractors. 2. Except as amended hereby, the Agreement shall remain in full force and effect. IN WITNESS WHEREOF, The parties have executed this Amendment Number One as of the day and year herein above first written. THE CHRISTIAN BROADCAST NETWORK, INC. By: /s/ Tim Robertson ------------------ GE AMERICAN COMMUNICATIONS INC. By: /s/ Martin C. Lafferty ---------------------- M. C. Lafferty Vice President, Cable Services EX-10.58 15 AMENDMENT NO. 2 TO TRANSPONDER SALES AGREEMENT Portions of this exhibit have been deleted and filed separately with the Securities and Exchange Commission pursuant to a request for confidential treatment. The redacted portions are identified by brackets with the character "*" indicating deleted information. [*] CONFIDENTIAL TREATMENT REQUESTED EXHIBIT 10.58 C3/C4 SATELLITE TRANSPONDER SALES AGREEMENT ------------------------------------------- AMENDMENT NUMBER TWO -------------------- This Amendment, made and entered into this 15th day of December 1989, by and between GE American Communications, Inc. (GE Americom) and The Christian Broadcasting Network, Inc. (CBN). WITNESSETH WHEREAS, GE Americom and CBN have entered into a C3/C4 Satellite Transponder Sales Agreement dated July 7, 1989 (the "Agreement"); and WHEREAS, the parties desire to amend the Agreement in certain respects; NOW, THEREFORE, in consideration of the foregoing, and for other good and valuable consideration, the receipt and sufficiency of which is acknowledged by the parties, the parties, intending to be legally bound, hereby agree to amend the Agreement as follows: 1. Revise the third sentence of Article 2.D. to read as follows: From the effective date of this Agreement until (i) as to the C-3 Transponders, the end of thirty days after such notice and (ii) as to the C-4 Transponders, the end of sixty days after such notice, CBN shall have an option, on written notice to GE Americom, to purchase a Fully Protected C-3 Transponder or a Fully Protected C-4 Transponder, which will result in a total of three (3) Transponders purchased by CBN hereunder. 2. Add a new Paragraph 5 to Article 24.B. as follows: 5. If C-3 and/or C-4 has not been launched by December 31, 1994, provided that CBN's right to terminate shall apply only to the Satellite(s) which have not been so launched. 3. Revise Article 24.C.1 to read as follows: If before the date of the launch of C-4, the [*] terminates its agreements for purchase of six transponders on C-4, solely for the reason that the FCC has not approved 50 state coverage. 4. Except as amended hereby, the Agreement shall remain in full force and effect. IN WITNESS WHEREOF, The parties have executed this Amendment Number Two as of the day and year herein above first written. THE CHRISTIAN BROADCAST NETWORK, INC. By: /s/ Tim Robertson ----------------------------------- GE AMERICAN COMMUNICATIONS, INC. By: /s/ Martin C. Lafferty ---------------------- M.C. Lafferty Vice President, Cable Services EX-10.59 16 LETTER OF AMENDMENT DATED 9/30/91 EXHIBIT 10.59 1000 Centerville Turnpike [THE FAMILY CHANNEL LETTERHEAD] Virginia Beach, Virginia 23463 804-523-7064 FAX# 804-523-7880 Larry W. Dantzler Vice President and Chief Financial Officer September 30, 1991 FAX TO: - ------- Mr. George Monaster Vice President, Cable Services GE American Communications, Inc. 570 Lexington Avenue 32nd Floor New York, New York 10022 Re: C-3/C-4 Satellite Transponder Sales Agreement, dated as of the 7th day of July, 1989, by and between GE American Communications, Inc., and The Christian Broadcasting Network, Inc., as predecessor in interest to International Family Entertainment, Inc. (the "Agreement") Dear George: Reference is made to paragraphs C and D of Article 3 to the above-described Agreement. GE American Communications, Inc. ("Americom") and International Family Entertainment, Inc., as successor in interest to The Christian Broadcasting Network, Inc., ("IFE") desire to amend said sections to extend from October 1, 1991 to December 31, 1991 the date by which IFE must elect to reduce its final payment under the Agreement, in order to pay for In-Orbit Protection and TT&C on a monthly basis. Accordingly, the parties agree that the date, October 1, 1991 in the second line of paragraph C and the second line of paragraph D of Article 3 to the Agreement, shall be deleted, and in its place in both paragraphs shall be substituted the date, December 31, 1991. Terms not defined in this letter shall have the meanings ascribed to them in the Agreement. Except as modified by this letter and any prior amendments, the Agreement shall remain in full force and effect. If the foregoing confirms our understanding, please so indicate by signing on the line below and returning a copy of this letter to me. Very truly yours, Read and Agreed: /s/ Larry W. Dantzler - --------------------- Larry W. Dantzler GE American Communications, Inc. Vice President and Chief Financial Officer by: /s/ George Monaster ------------------- EX-10.60 17 AMENDMENT NO. 4 TO TRANSPONDER SALES AGREEMENT EXHIBIT 10.60 C3/C4 SATELLITE TRANSPONDER SALES AGREEMENT ------------------------------------------- AMENDMENT NUMBER FOUR --------------------- This Amendment, made and entered into this 24th day of November, 1992 by and between GE AMERICAN COMMUNICATIONS, INC. ("GE Americom") and INTERNATIONAL FAMILY ENTERTAINMENT, INC. ("Customer"), as successor in interest to The Christian Broadcasting Network, Inc. W I T N E S S E T H WHEREAS, GE Americom and Customer are parties to a C3/C4 Satellite Transponder Sales Agreement dated July 7, 1989, as amended by an Amendment Number One and an Amendment Number Two each dated December 15, 1989 and by a letter amendment dated September 30, 1991 (as amended, the "Agreement"); and WHEREAS, the parties desire to amend the Agreement further in certain respects; NOW, THEREFORE, in consideration of the foregoing, and for other good and valuable consideration, the receipt and sufficiency of which is acknowledged by the parties, the parties, intending to be legally bound, hereby agree to amend the Agreement as follows: 1. Change all occurrences of the abbreviation "CBN" to "Customer." 2. Add a new Paragraph Y to Article 1 as follows: Y. "Video Services" means video and related services that are delivered primarily to cable television systems, satellite master antenna television systems, multipoint multichannel distribution systems, "backyard" television receive-only facilities and functionally similar technologies. 3. Revise Paragraph A of Article 4 to read as follows: Subject to the provisions of Article 5 hereof, (i) title to the Transponder on C-4 shall pass to Customer upon the Commercial Operational Date of the C-4 Satellite and (ii) title to the Transponder on C-3 shall pass to Customer on the later of the Commercial Operational Date of the C-3 Satellite or January 4, 1993, provided in each case that all payments due under this Agreement to GE Americom as of the applicable date have been made, including any interest owing on late payments. If title to a Transponder does not pass to Customer on the date specified in the preceding sentence with respect to such Transponder because of Customer's failure to make all the payments due to GE Americom, including any applicable interest, title shall pass to Customer upon its paying GE Americom all amount then owing, unless this Agreement is earlier terminated by GE Americom pursuant to Article 24.C.3. In the event that the Commercial Operational Date of the C- 3 Satellite occurs prior to January 4, 1993, Customer shall have the right to use the Transponder on the C-3 satellite at no additional charge during the period from the Commercial Operational Date until January 4, 1993. 4. Revise Paragraph B of Article 9 as follows: Customer agrees that at least until December 31, 1996 it will (i) use the Transponder on either C-3 or C-4 for the transmission of the primary outbound feed known as "The Family Channel (West)" and (ii) use the other Transponder for (a) the transmission of a primary outbound feed of one of its principal Video Services or (b) a replica of a primary feed of The Family Channel. 5. Revise Paragraph C of Article 9 by deleting the words "video programming" in the second line thereof and replacing them with the words "Video Services." 6. Add a new Paragraph G to Article 9 as follows: Each request by Customer for GE Americom's consent to an assignment or transfer pursuant to Article 9.D above shall be in writing and set forth the consideration to be paid by the assignee or transferee for the Transponder or Transponders subject to such proposed assignment or transfer and the other material terms and conditions of such assignment or transfer. In lieu of consenting to the proposed assignment or transfer, GE Americom shall have the option to repurchase the Transponder or Transponders proposed to be transferred for a purchase price equal to that to be paid by the proposed transferee and on the same material terms and conditions. Such option shall be exercisable upon thirty days' prior written notice to Customer, such notice to be given at any time within thirty days after receipt of the written request described in the first sentence of this Paragraph. If the proposed consideration for a transfer is reduced prior to consummation of such transfer, the Transponder(s) shall be offered to GE Americom again at such reduced consideration. Nothing in this Paragraph shall require GE Americom to repurchase a Transponder in order to prevent a transfer to which GE Americom is otherwise entitled to object pursuant to Article 9.D. 7. Renumber Article 27 as Article 28 and insert a new Article 27 as follows: ARTICLE 23. PROGRAMMING CONTENT ---------- ------------------- 2 A. Customer agrees that it will not itself use the Transponders, and will not authorize or permit others, including without limitation it successors, subcontractors or transferees, (hereinafter its "Designees") to use the Transponders to transmit unlawful programming of any nature, provided, -------- however, that Customer shall not be responsible for "pirate" transmissions ------- by parties not authorized by Customer or Customers's Designees to use the Transponders and whose unauthorized use Customer takes prompt and reasonable steps to terminate. Customer and its Designees will not transmit programming containing "sexually explicit conduct" as defined in 18 U.S.C. (S) 2256(2) unless the depiction of such conduct in a program is integrally related to and advances the thematic content of the program and such content has serious literary, artistic, political or scientific value. B. GE Americom may terminate, prevent or restrict any programming using the Transponders provided hereunder as a means of transmission if such actions (1) are undertaken at the request or by direction of a governmental agency (including the FCC), (2) are taken subsequent to the institution against GE Americom, any legal entity affiliated with GE Americom or any of the officers, directors, agents or employees of GE Americom or its affiliates, of criminal, civil or administrative proceedings or investigations based upon the content of such programming, or (3) are taken subsequent to the institution against Customer, any of its Designees or any of the officers, directors, agents, employees or affiliates of Customer or its Designees, of criminal, civil or administrative proceedings or investigations based upon the content of such programming. Under the circumstances set forth in clause (3) of the preceding sentence, GE Americom shall provide two business days' advance notice to Customer that it intends to take action to terminate, prevent or restrict such programming, in which event Customer or its Designees, as appropriate, may, during the period of notice, either (a) suspend, and agree to continue to suspend, use of the service to transmit any programming which is the subject of the notice, and any programming of a similar nature, until such time as, in the judgment of GE Americom's counsel exercised in good faith, the programming can be resumed without risk, in which event GE Americom will not terminate, prevent or restrict such programming pursuant to clause (3) of the preceding sentence so long as Customer and its Designees, as appropriate, remain in compliance with the terms of said agreement and this Article, or (b) obtain injunctive relief against actions by GE Americom to terminate, prevent or restrict such programming. C. GE Americom may terminate, prevent or restrict any programming using the Transponders provided hereunder as a means of transmission if, in the judgment of GE Americom's counsel exercised in good faith, (1) such actions are reasonably appropriate to avoid violation of applicable law by GE Americom, any affiliated company, or any of the directors, officers, agents or employees of GE 3 Americom or its affiliated companies; or (2) there is a reasonable risk that criminal, civil or administrative proceedings or investigations based upon the content of such programming will be instituted against GE Americom, any affiliated company, or any of the directors, officers, agents or employees of GE Americom or its affiliated companies; or (3) such programming will expose GE Americom to costs, expenses, liability, damages, fines or other penalties from which GE Americom is not adequately protected by arrangements for compensation, indemnity and insurance provided by Customer. Under the circumstances set forth in the preceding sentence, GEAmericom shall provide two business days' advance notice to Customer that it intends to take action to terminate, prevent or restrict such programming, in which event Customer or its Designees, as appropriate, may, during the period of notice, either (a) suspend, and agree to continue to suspend, use of the service to transmit any programming which is the subject of the notice, and any programming of a similar nature, until such time as, in the judgment of GE Americom's counsel exercised in good faith, the programming can be resumed without risk, in which event GE Americom will not terminate, prevent or restrict such programming pursuant to the preceding sentence so long as Customer and its Designees, as appropriate, remain in compliance with the terms of said agreement and this Article, or (b) obtain injunctive relief against actions by GE Americom to terminate, prevent or restrict such programming. D. A decision by GE Americom at any time that action to terminate, prevent or restrict programming is or is not warranted shall not operate to, or be deemed to, limit or waive GE Americom's right to take or not take action at another time to terminate, prevent or restrict programming. E. In the event any criminal, civil or administrative proceeding or investigation is instituted against GEAmericom, any legal affiliate thereof, or any of the directors, officers, agents or employees of GE Americom or its affiliated companies (the "Indemnified Parties"), based upon the content of any programming which is transmitted using the Transponders provided hereunder, Customer shall indemnify and save harmless the Indemnified Parties from all liabilities and damages of any nature, including without limitation, to the extent permitted by law, any fines or other penalties resulting from or arising out of such proceedings or investigations, and from all reasonable costs and expenses (including attorney fees and expert witness fees) incurred in connection therewith. Except in the case of civil proceedings in which the requested relief consists solely of an award of monetary damages, which shall be governed by the provisions of Article 17.D of this Agreement, GE Americom shall have the right, but not the obligation, to require Customer to conduct the defense of GE Americom in any such proceedings or investigations at the expense of Customer. If GE Americom elects to conduct its own defense in accordance with the preceding sentence, Customer shall nevertheless remain liable for the liabilities, damages, costs and expenses described 4 in the first sentence of this Article 23.E. 8. Except as amended hereby, the Agreement shall remain in full force and effect. IN WITNESS WHEREOF, the parties hereto have executed this Amendment Number Four as of the day and year first above written. INTERNATIONAL FAMILY ENTERTAINMENT, INC. By: /s/ Timothy B. Robertson ------------------------- Name: Timothy B. Robertson ------------------------- (Typed or Printed Name) Title: President ------------------------ Date: November 24, 1992 ------------------------ GE AMERICAN COMMUNICATIONS, INC. By: /s/ George Monaster ------------------------ (Signature) Name: George Monaster ------------------------ (Typed or Printed Name) Title: V.P. Cable Services ----------------------- Date: Dec. 2, 1992 ----------------------- 5 EX-23.2 18 CONSENT OF ERNST & YOUNG EXHIBIT 23.2 CONSENT OF INDEPENDENT AUDITORS We consent to the reference to our firm under the captions "Experts," "Selected Historical Consolidated Financial Data" and to the use of our reports dated September 29, 1997, except for the 2nd, 3rd, 6th, and 7th sentence of the 35th paragraph of Note 1, as to which the date is January 21, 1998, with respect to FCN Holding, Inc., Saban Entertainment, Inc. and Fox Kids Worldwide, L.L.C. (from and after the date of the Reorganization, Fox Kids Worldwide, Inc.), September 27, 1996, except for the second paragraph of Note 10 as to which the date is September 29, 1997 with respect to FCN Holding, Inc. and September 27, 1996 except for the third paragraph of Note 11 as to which the date is September 29, 1997 with respect to Saban Entertainment, Inc., in Amendment No. 2 to the Registration Statement (Form S- 1 No. 333-12995) and related Prospectus of Fox Kids Worldwide, Inc. for the registration of 9 1/4% Senior Notes Due 2007 and 10 1/4% Senior Discount Notes Due 2007. Our audits also included the financial statement schedules listed in Item 16(b). These schedules are the responsibility of the company's management. Our responsibility is to express an opinion based on our audits. In our opinion, the financial statement schedules referred to above, when considered in relation to the basic financial statements taken as a whole, present fairly in all material respects the information set forth therein. Ernst & Young LLP Los Angeles, California February 18, 1998 EX-23.3 19 CONSENT OF KPMG EXHIBIT 23.3 The Board of Directors International Family Entertainment, Inc.: We consent to the use of our report included herein and to the reference to our firm under the heading "Experts" in the prospectus. KPMG Peat Marwick LLP Norfolk, Virginia February 20, 1998 -----END PRIVACY-ENHANCED MESSAGE-----